Merger

Definition

A merger is the transaction by which one or more companies transfer all of their assets and liabilities to another company, in exchange for shares issued to their members. The assets and liabilities are transferred as a whole, including property, contracts and liabilities, in a single movement. It is decided by the members concerned.

The transaction requires a draft drawn up by the directors, which identifies the companies concerned and the valuation of the contributions. This draft is filed with the court registry and published, after which the members vote in accordance with the rules specific to the legal form. Creditors have a right to object, within a period laid down by the applicable rules.

A merger is distinct from similar transactions. It is not a transfer of shares, which changes the holders of the share capital without the company losing its identity, nor an isolated transfer of an asset. Its specific effect is to dissolve a company without liquidation and to make the transfer enforceable against third parties.

The two forms of merger

The texts distinguish between two arrangements, depending on what happens to the participating companies.

Merger by absorption

The absorbing company receives the assets and liabilities of the absorbed company, which ceases to exist. The absorbed company is dissolved without winding up, without realization of assets or settlement of liabilities. The absorbing company retains its legal identity and assumes its obligations.

Merger by formation of a new company

None of the participating companies survives the transaction. They disappear into a new company whose shareholders are the former shareholders of the dissolved companies. This company comes into existence with the transferred assets and liabilities and must be registered.

Effects common to both forms

In both cases, the transfer of assets and liabilities is universal; it covers all property, rights and obligations without any need to list them. The absorbed company is struck off the register and its identification number ceases to be active.

What the merger changes for third parties

A merger changes the counterparty for third parties, since the liabilities of the dissolved company are now borne by another. Ongoing employment contracts follow the transferred business, and employees retain their acquired rights with their new employer.

Creditors and the right of objection

Creditors whose claim predates the publicity may file an objection within the period provided for by the applicable rules, in order to obtain payment or the provision of guarantees. In the absence of an objection or after it has been withdrawn, legal proceedings are brought against the company that received the assets.

What is not a merger

A partial contribution of assets transfers only part of the assets, and the contributing company survives alongside the beneficiary company. A transfer of shares changes the holders of the capital without transferring any assets or dissolving any company. These transactions are not governed by the same regime.

Frequently asked questions

What is the difference between a merger and a transfer of shares?

A transfer of shares transfers ownership of the securities; the company remains the same and only its shareholders change. A merger transfers the assets and liabilities to another company, and the absorbed company disappears. The legal regime and the formalities differ markedly.

What happens to the absorbed company after a merger?

It is dissolved without liquidation and struck off the trade and companies register, without going through liquidation proceedings. Its assets and liabilities are transferred as a whole and its identification number ceases to be active.

Can creditors object to a merger?

Yes, creditors whose claim predates the publication have a right of objection, within a period provided for by the applicable texts. The objection is brought before the court, which assesses the request.