Mergers take place though the acquisition (absorption) of one or more companies by another, or else by the incorporation of a new company. In part, such mergers are governed by common regulations.
The acquisition (absorption) of one company by another holding 90 % or more of the shares, units and securities conferring voting rights in the absorbed company is one form of the process for which formalities have been simplified.
A merger by incorporation of a new company is the process by which multiple companies transfer all of their holdings (assets and liabilities) to a new company which they have formed, following their own dissolution, distributing shares or units in the new company to their shareholders.
In both types of mergers, a cash adjustment not exceeding 10 % of the nominal value of the distributed stocks or units or, if they have no nominal value, of their accounting par value, may be paid.
Cross-border mergers and mergers involving a société européenne (SE – European Company) are subject to additional regulations.
Mergers may take place between any companies with legal personality and economic interest groups (EIGs).
A merger may also take place when one or more of the companies or EIGs being absorbed or dissolved:
A société à responsabilité limitée (limited liability company), a société coopérative (cooperative company) or an EIG can acquire another company or EIG if and only if the partners meet the conditions required to acquire the status of partners or members of the absorbing company or EIG.
The resulting company, formed by the merger, must necessarily be a société anonyme (public limited company) when:
Companies intending to enact a merger must produce a document known as the draft terms of merger. This is an important document providing information to third parties and the company partners. However, it is not legally binding on the company since all formal decisions are taken at a later stage.
The draft terms of merger must specify:
The draft absorption must be filed with the Trade and Companies Register (RCS) for publication in the Electronic Compendium of Companies and Associations (RESA) at least one month prior to the decision of the general meeting effecting the merger.
If the absorbing company holds all the shares, units and securities carrying voting rights in the company/companies being absorbed, then the draft plan need not include:
These rules still apply in the case of a European company.
The management's report is intended for the partners. It explains the legal and economic grounds for the planned merger and, in particular, the ratio applicable to the exchange of units or shares.
This report may contain the same information as the auditor's report.
To simplify the procedure, it is possible to forego this report, if so decided unanimously by the partners and other holders of voting rights.
The role of the statutory auditor is to produce a report on the terms of the merger for each of the companies. Their involvement is mandatory. However, the managerial bodies of the companies that are to be merged may reach agreement as to the appointment of an independent expert, who will be appointed by the President of the District Court having jurisdiction over the district where one of the merging company's registered offices are located.
The report must specify:
To simplify the procedure, the partners and other holders of voting rights may decide to forego such a report. In that case, the decision must be unanimous.
A merger is a complex procedure. As such, partners must be able to make decisions in full awareness of the facts.
Hence, at least a month prior to the date of the general meeting which is to rule on a planned merger, each partner is entitled to acquaint themselves with the following documents at, which shall be made available at the registered office:
Each partner is entitled to this information on demand, free of charge. The company may opt to send this information in electronic format, if the partners are amenable. Alternatively, the information may be published online.
If the absorbing (acquiring) company holds all the shares, units and other securities carrying voting rights in the companies being absorbed, the following requirements do not apply:
When a merger by acquisition is conducted by a company holding at least 90 %, but less than 100 %, of the shares, units and other securities carrying the right to vote at the absorbed company's/companies' general meetings, the auditor's report is not required, and the procedures for communicating with partners do not apply if:
The merger requires the approval of the partners, shareholders, or holders of securities with voting right of each of the merging companies.
The decision requires that the conditions of quorum and majority, as provided for in the case of amendments to the articles of association, be met.
The minutes of the general meetings at which the decision to proceed with the merger is taken are established by notarial deed. The same is true for the draft terms of merger when the merger does not require the approval of the general meetings of all the companies being merged.
The notary must verify and certify the existence and legality of the documents and formalities incumbent upon the company on whose behalf they are working, and of the draft terms of merger.
Except in special circumstances, the approval of all partners is required in partnership companies, as their rights may change. This rule also applies to holders of securities representing the capital.
The approval of all partners is required for the absorbing entities, or for those being absorbed, when they are:
The approval of all partners is required for the companies being absorbed when the absorbing company is:
Unanimous approval is required on the part of the holders of non-capital shares in:
In other cases, notably when the merger by acquisition of a company absorbing the other(s) holds at least 90 %, or all of the shares, units and other securities with voting rights at the absorbed company's/companies' general meetings, the approval of the merger by the general meeting of the absorbing company is not necessary if:
However, publication in the RESA is required for each of the companies concerned, at least one month before the transaction between the parties takes effect.
In limited partnerships and partnerships limited by shares, the approval of all partners is required.
If there are several classes of shares, units or securities, whether or not they are representative of the capital, and if the merger will alter the respective rights attaching to them, then the conditions of quorum and majority provided for by law or in the articles of association must be met for each such class.
The merger decision must be published in the RESA.
The creditors of the merging companies, whose receivables pre-date the publication of the notification of the merger, may demand securities in respect of their receivables, provided they can demonstrate that:
The request must be sent, within 2 months, to the district court having jurisdiction over the district where the debtor company's registered office is located. Such a request will not halt the merger.
The debtor company may set aside the request by paying back the creditor. Should they fail to do so, if the security is not delivered by the set deadline, then the debt is payable immediately.
The bondholders of companies taking part in a merger also enjoy the same rights.
The holders of securities to which special rights are attached, other than shares or units, must enjoy rights in the newly formed companies at least equivalent to those they held in the absorbed company, unless a modification of these rights has been duly approved by a meeting of those security holders, as is required for a change to the Articles of Association. Notably, in the event of differences of opinion, the securities in question can be redeemed at the price at which they were valued in the preparations for the merger.
If the absorbed company or the absorbing company is:
the partners or members remain jointly or severally liable, depending on the circumstances, to third parties, for the commitments of the dissolved company prior to:
However, they may be discharged of such liability by an express clause inserted into the draft merger document and the merger notification duly published in the RESA.
The absorbed company must publicise its dissolution in the RESA.
The absorbing company must, where applicable, publicise the capital increase or the amendments to its Articles of Association in the RCS.
Partners in the absorbed company who believe their interests to have been prejudiced may hold the members of the governing bodies, and the experts who contributed to the merger, liable on the grounds of fault for a period of 5 years.
A merger can only be declared null and void by a court. Proceedings to have a merger nullified by the court can only be brought within 6 months of the publication of notice thereof. The court may grant the company time to rectify the situation.
The grounds for nullity are limited and only concern fundamental rules, such as:
The order declaring the merger to be null and void must be filed with the RCS for publication in the RESA. The decision may be appealed within 6 months.
The absorbing company continues to be bound by the obligations entered into.
In a merger by absorption (acquisition), the absorbed company is dissolved, and no longer exists as a legal entity.
In a merger by incorporation, both of the pre-existing companies are dissolved.
The holdings of the dissolved company, comprising its assets and liabilities, are transferred to the absorbing company or to the new company formed as a result of the merger. This transfer takes place automatically, without the need for any formalities.
Nevertheless, the transfer of ownership of movable/immovable assets, industrial/intellectual property and other real assets other than securities must be carried out in accordance with the specific applicable laws in order to be enforceable against third parties.
The liabilities to be transferred includes both known debts and any debts which may not have been disclosed during the merger process.
The partners in the absorbed company become partners in the absorbing company, and the shares they hold in the absorbed company are cancelled.
Ongoing contracts, including employment contracts, are automatically transferred to the absorbing company or the newly formed company.
The holdings of the absorbed company are transferred automatically to the absorbing company as soon as the merger is enacted.
However, with respect to third parties, as before, it is the publication of the notice of the merger in the RESA which renders the transactions enforceable.
A so-called "merger by consolidation" is a special case of a merger by acquisition. The absorbing company already holds all of the capital in the absorbed company before the merger is enacted.
In such circumstances, the merger procedure is simplified. As the merger has effectively taken place, from a financial point of view, the formalities pertaining to the protection of various parties' interests need not be as complicated.
The management report and the auditor's report are not required.
The merger does not lead to the issue of new shares.
When an absorbing company holds at least 90 % of the companies being absorbed, the general meeting of the absorbing company must approve the merger, unless:
The management report, the auditor's report and the procedure for the examination of the financial documents are not required if:
In the event of disagreement as to the amount of such consideration, the latter shall be determined by a judge.
In the absence of special measures, each legal stage of the merger is taxed separately. Consequently, the operation may sometimes prove extremely costly in terms of taxes.
However, a preferential treatment scheme has been implemented so as not to deter businesses from carrying out corporate restructuring. The scheme is driven by the twofold desire to make mergers as easy as possible from a taxation standpoint and to safeguard the Inland Revenue's rights over latent capital gains existing on the day of the merger.
Model of memorandum of association for a Luxembourg SA
Modèle de statuts - SA
Modèle d'un acte constitutif d'une société anonyme de droit luxembourgeois
Démarche en ligne
Muster einer Gesellschaftssatzung einer SA