The Merger Act: Merger and Demerger
Amongst others, the Merger Act determines the course of action regarding mergers and demergers. The rulings under the Merger Act apply for all legal forms.
The coalescence of two or more companies into a single entity is called a merger. By means of universal succession, assets and liabilities are transferred to the acquiring company. The company that is being acquired does not undergo liquidation, as it is simply transferred into another company. In most cases, the principle of continuity of membership is sustained, as at least one of the two enterprises is dissolved. According to Article 3 of the Merger Act, two types of mergers exist: the merger by absorption and the combination merger. When absorbing, a corporation takes over one or more companies that are then dissolved. With the combination merger however, two separate corporations come together to form a new corporation that needs to go through all the regular steps of foundation. The admissible possibilities are listed in article 4 of the Merger Act. Furthermore, the course of action regarding a merger is stated in article 12 et seq. of the Merger Act. Thus, a merger agreement is to be concluded, there must be a written report of the merger, and the contract and the report must be approved by an authorised audit expert. There must also be a resolution of the authorised body of the legal entity. The merger is legally effective from the moment of entry in the commercial register.
The demerger separates a corporation into smaller companies. Assets and liabilities are spread across the new companies and the shareholders receive membership or participation rights. The two main distinctions made are between spin-offs and split-ups. When splitting up a company, all the assets are transferred and the corporation is dissolved. A spin-off however does not implicate the dissolution of the original corporation and only a certain percentage of the assets are transferred. The course of action when demerging is similar to a merger. However, the scope of the demerger is limited and only certain legal forms can undergo demerging.