The 5 most common problems with merging companies

The merger of companies is a multi-stage and rather complicated process. Our experience shows that there are several issues in this area that usually raise difficulties. In this article we discuss 5 of them. We focus on the merger of limited liability companies by way of acquisition and describe the problems from the perspective of Polish law.

 

1. Participation of foreign entities

The shareholders of the merging companies are often foreign companies. This circumstance poses an additional challenge, because it raises the need to confirm the validity of the foreign company’s data and representation rules.

Foreign commercial registries can be helpful in this regard. However, not all countries have equivalents of Polish National Court Register[1] and even if similar registries exist, they often do not contain all the necessary information.

 

2. The need to obtain additional consents

Company agreements or internal documents using in the merging companies’ groups may include the obligation to obtain additional consents e.g.:

• shareholders’ meeting for the signing of the merger plan by the board of directors;
• Supervisory Board on the merger of the companies;
• other bodies of the shareholders, especially in the case of shareholders who are foreign entities.

The existence of such additional obligations should be verified during planning the entire merger process. Early identification of such requirements will enable obtaining consents at appropriate stages of the process.

This issue is important, because the failure to obtain the relevant consent, in certain cases, may constitute a formal obstacle to carrying out a merger of companies (depending on how the additional obligation in this regard is formulated).

 

3. Determination of share exchange ratio

Determination the ratio of exchange the shares of acquired company for shares of acquiring company (share exchange ratio) is a mandatory element of the merger plan – unless no exchange takes place during a given merger[2].

The basis for determining the share exchange ratio is a comparison of the values of the merging companies. By making the appropriate calculations, it is determined how many new shares in share capital of acquiring company will be issued to shareholders of acquired company. The number of new shares should result from the established share exchange ratio and not be determined arbitrarily.

In a particular case, it may be necessary to grant additional contributions to shareholders – due to the calculated share exchange ratio. The amount of the additional contributions should be indicated in the merger plan.

 

4. Choosing the method of publication of the merger plan

The merger plan should be announced in the Court and Economic Monitor[3] and also in another way specified in the company’s articles of association[4] – if such a way was indicated.

Each merging company should take care of the announcement on its own. However, in order to streamline the process, the companies can cooperate and file a joint application for the announcement[5].

Alternatively, the plan can be published on the company’s website[6]. Such an option avoids the long wait for publication the merger plan in the Court and Economic Monitor and the associated costs.

The merger plan should be published on the company website in a manner that is generally accessible so that it can be found by anyone interested. The obligation will not be fulfilled e.g:

• by publication the merger plan on a social networking site;
• a website with announcements;
• by publication the plan as the file with password.

Publication the merger plan by one of the merging companies does not exempt the other companies from this obligation.

 

4.1. What to keep in mind while deciding on the form of publication of the merger plan?

Regardless of the method of publication, in each case, it is necessary to meet the appropriate deadline.

In addition, it should also be remembered that the submission of an application for the announcement of the merger plan / announcement of the merger plan on the website is linked to the valuation day of the companies. The valuation of companies is carried out on any day in the month preceding the submission of such an application or the announcement of the plan on the company’s website.

 

5. Duties performed after the merger of companies

The merger of companies is effective upon its entry in the National Court Register[7]. Regardless, it is important to keep in mind the obligations performed after the merger.

These include, e.g. an announcement of the merger[8], updating data in the relevant registers, obligations arising from tax regulations and the Accounting Act.

The source of most of the post-merger obligations are provisions of acts other than the Commercial Companies Code. For this reason, their proper identification is not always an easy task. The scope of post-merger obligations and the deadlines for their performance should be determined during the merger. Planning the activities will streamline the implementation of several obligations.

 

There may be more potential problems

The presented issues are very important in practice and occur during the process very often, (some of them always). However, these issues are not the only ones that may arise. It is essential to remember that each merger process requires an individual approach and planning. That’s why we are here to help and invite you to contact us if needed.

 

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[1] National Court Register

[2] Article 499 § 1 item 2 of the Commercial Companies Code

[3] Court and Economic Monitor

[4] Article 500 § 2 of the Commercial Companies Code

[5] Article 500 § 3 of the Commercial Companies Code

[6] Article 500 § 2 of the Commercial Companies Code

[7] National Court Register

[8] Article 508 of the Commercial Companies Code