Transformation of Your Company – How Does It Work?

Have the circumstances changed? Transforming your company could be a solution if its existing legal form seems no longer appropriate. To ‘transform’ a sole proprietorship, it is necessary to liquidate it and found a new company, whereas a company can be transformed, due to the Mergers Act, using a simplified procedure.

Transforming a Sole Proprietorship into a Company (LLC/PLC)

The sole proprietorship is a business owned by a natural person. Has your business got off to a good start and do you wish more security when expanding it? So we recommend you transforming it into a company. A sole proprietorship that is to be transformed into a company has to be liquidated in the process. At the same time, its assets and liabilities pass to the limited or public liability company being founded. It is important here that there is a surplus of assets, i.e. more assets than liabilities. The transfer can have the form of acquisition or contribution in kind. The favourite option is contribution in kind, where all the assets and liabilities are taken over as part of the foundation of a new company to (partially) finance its shares. The best way is to schedule the transformation as at the beginning of the year because the required documents such as the transformation balance sheet or inventory list can be compiled based on the annual statement for the previous year. Nevertheless, the fact of them having to be prepared should not be underestimated. For this purpose, please compare our detailed checklist, which will help you compile these documents.

Transforming a Company into Another Legal Form (LLC to PLC)

If, for example, a limited liability company would like to increase its share capital and bring new investors on board, a public limited company is more advantageous. Here the procedure looks different than for sole proprietorships because transoformations of companies are governed by the Mergers Act. The following steps have to be taken to make a transformation:

1. Transformation balance sheet (not older than six months).
2. Written transformation plan as defined in article 59 et seq. of the Mergers Act.
3. Written transformation report as defined in article 61 of the Mergers Act (small and medium-sized companies can omit this step provided that it is approved by all shareholders).
4. Review of the transformation report and plan by a chartered auditor as set out in article 62 of the Mergers Act (small and medium-sized companies can omit this step provided that it is approved by all shareholders). The balance sheet has, in any case, to be reviewed by a chartered auditor.
5. Shareholders’ right to inspect, within 30 days prior to adopting the relevant resolution, into the transformation plan and report, the auditor’s report and the annual returns and statements of the three last years and, as the case may be, the provisional balance sheet (article 63 of the Mergers Act)
6. Adoption of the transformation resolution by the General or Shareholders’ Meeting as set forth in article 64 of the Mergers Act.
7. Notarisation of the transformation resolution as required under article 65 of the Mergers Act.
8. Entry in the Commercial Register as set out in article 66 of the Mergers Act.

Once the transformation is entered in the Commercial Register, it becomes effective and the new company is brought into existence.

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