Merging businesses

If you're looking for new business opportunities, you can also consider merging or taking over an existing company. The following rules concern 'limited liability companies' based in at least two different EU countries.

EU rules must be applied to mergers when:

EU countries may choose not to apply the above-mentioned rules to cross-border mergers involving cooperative societies, even if they are defined as limited liability companies.

Preparing the documentation (common draft terms)

When your company is involved in a merger you must draw up a document, known as common draft terms of the merger, containing at least the following points:

• name and registered office of the companies involved, and of the company resulting from the merger
• the ratio and terms of allotment that will be applied to the exchange of securities (i.e. how much of your acquiring company's shares will be offered to the shareholders of the acquired companies) and the amount of cash you give as payment (if applicable)
• likely effect on employees
• the date from which the new holders (of the securities of the company resulting from the merger) have the right to dividends
• statutes of the company resulting from the merger
• procedures for the arrangements employees should make when dealing with the board members in the company resulting from the merger (where appropriate)
• information on the evaluation of the assets and liabilities transferred to the company resulting from the merger

Publishing the documentation

You must publish the common draft terms at least 1 month before the general assembly meetings take place. These meetings are attended by all the companies deciding on the merger.

You should publish the common draft terms either on the websites of the companies involved or on a dedicated website for mergers in the EU countries concerned.

Preparing the reports for the general meeting

You should usually prepare the following two reports before the general meetings. However, if all owners of the companies involved agree, you can omit the independent expert report.

Agreeing on the draft terms

All the companies involved in the merger must agree on the draft terms during general meeting sessions.

All companies involved have the right to ensure that the implementation of the merger is conditional; depending on the continuing staff participation after the merger has taken place.

If you're the acquiring company, you can approve the merger without the need to attend the general meetings as long as the other companies involved agree. To do this you must ensure that:

• the common draft terms are published at least 1 month before the general meetings take place
• all other documents relevant to the merger are available for inspection by their shareholders (these could be the annual accounts and annual reports of the companies subject to the takeover)

Checking the legality of the merger

The merger must be checked for legality in each EU country involved before it can enter into force. This is normally done by a notary or court. After checking if everything is in order, they will issue a pre-merger certificate.

Once the pre-merger certificate is issued, the merger can be completed; as long as the companies involved have approved the common draft terms. Then the relevant authority — in the country where the new company will be created and registered — must check the legality of the formation of the new company.

Find below the relevant competition authority in each country:

Entry into force

The same competent authority in the country where the acquiring or newly-formed company is registered then decides the date when the merger will take effect.

It is the responsibility of each company involved to publish information about the merger on its own national public register. The old company registrations can then be deleted.

Continued staff participation

As a general rule — if you're the acquiring/newly formed company — the future of staff participation in your company is determined by the rules of the EU country where your company is registered.

Staff participation in the acquired/newly formed company cannot be guaranteed by national law if:

• no guarantee can be given for the same level of staff participation as previously existed in the acquired companies
• at least one of the companies involved in the merger had an average of more than 500 employees in the 6 months leading up to the publication of the common draft terms

Mergers for large companies

If the turnover of the combined businesses is greater than certain specified amounts both worldwide and within the EU, you must request approval from the European Commission - irrespective of where your company is based. The Commission will examine the proposed merger's impact on competition in the EU. If the merger is deemed to significantly restrict competition it would be rejected. Sometimes mergers are approved with certain conditions attached, for example, they may commit to selling part of the combined business, or to license technology to another market player.