Merger by incorporation in Italy: definition
The expression "merger by incorporation in Italy" refers to the process of merging together a number of companies into one company.
In Italy, mergers by incorporation can take the form either of a merger by creation, where the original companies are merged into a new company, losing their own legal personality), or of a merger by absorption, where different companies are merged into one already existing company, so that the latter retains its legal personality, while the incorporated companies cease to exist.
Moreover, mergers by incorporation can either be homogeneous, wheninvolving companies of the same kind), or heterogeneous, when involving companies of different kind.
Mergers by incorporation can have different objectives:
- productive objectives, aimed at increasing productivity, improving capacity utilisation, and integrating different production phases;
- commercial objectives, aimed at increasing competitiveness, reducing competition by acquiring a competitor company, enlarging and integrating the range of offered products, improving contractual positions or advertising opportunities;
- technological objectives, aimed at acquiring brands, patents, licenses, production secrets, exploitation rights, know-how, as well as achieving economies of scale and developing research and planning;
- administrative objectives, aimed at reducing administrative costs, by means of advannced structures and information systems;
- logistical objectives;
- financial objectives.
It is worth noticing that companies in compulsory liquidation distributing their assets aren't allowed to take part in mergers.
Merger by incorporation of Italian and foreign companies
Mergers by incorporation of Italian and foreign companies (in the specific case of a merger of fully owned companies), are regulated by Article 2505 of the Italian Civil Code, establishing a "simplified" merging procedure.
This latter is possible only on condition that all shares of the incorporated company are owned by the incorporating company at the moment the merger takes place. Thus, in the case of a merger by incorporation of an Italian company into a foreign company, the Italian company divests its shareholdings in the foreign company, transfers its registered office abroad and waives to be subject to Italian jurisdiction.
As a result, the Italian company becomes a foreign company and is removed from the Italian Company Register.
The foreign incorporating company instead, pursuant to Article 2505 of the Italian Civil Code, acquires all rights and obligations of the Italian company and continues all its relationships prior to the merger, including relationships relating to legal proceedings.
The above mentioned simplified procedure leads to the following benefits:
- there is no need to indicate the share-exchange ratio and the timing and the manner of allotting the shares in the draft terms of merger;
- there is no need to prepare an administrator report explaining and justifying, both from an economical and juridical point of view, the draft terms of merger and in particular the share-exchange ratio, the criteria of which it should otherwise be clarified;
- there is no need to prepare an expert report on the adequacy of the share-exchange ratio.
Merger by incorporation in Italy: Cross Border Merger EU-Directive
Cross border mergers (that is a merging procedure in which companies subject to the laws of different countries are involved) are regulated y Article 25(3), of the Italian Law of 31 May 1995, No. 218, according to which mergers of companies with registered offices in different countries are in force only on condition that they are compliant with the laws of the interested countries.
Until today, because of some difficult legal issues, cross border mergers were difficult to implement for Italian companies.
In particular, there was the need not only to know wether the foreign company's legal system allowed a merger with an Italian company, but also to understand which laws were applicable in case of lack of uniformity or conflict between the laws on mergers of the countries involved in the merger.
The main problems have been solved by the European Directive No. 2005/56/Ce, aimed at harmonizing procedures within the European Union and at determining the applicable laws in case of lack of uniformity or conflict between the laws of the different countries involved in the merger procedure.
More in detail, the Directive has established a principle according to which the incorporated company continues to be subject to the laws of its own country, while the laws of the country to which the incorporating company belongs prevail in case of any conflict.
As for the scope of the Directive, it extends to all capital companies formed under the laws of, and with head Office in an EU Member State.
The Directive sets out the procedures associated with cross order mergers, including:
- common draft terms of cross border merger;
- report drawn up by the management or administrative organ of each of the merging companies, "intended for the members explaining and justifying the legal and economic aspects of the cross-border merger and explaining the implications of the cross-border merger for members, ... and employees".
- report on the implications of the merger drawn up by independent experts;
- approval of the draft terms of cross border merger by the general meeting of the companies involved in the merger.
The effects of a cross order merger are:
elimination of the company to e incorporated;
transfer of all assets and liabilities of the incorporated companies to the new incorporating company;
members of incorporated companies become members of the incorporating company.
Merger by in corporation in Italy: effects
As a result of a merger between an Italian and a foreign company, as regulated by Article 2504b of the Italian Civil Code, the new company resulting from a merger or the incorporating company acquires all rights and obligations of the merged companies, continuing all their relationships prior to the merger, including relationships relating to legal proceedings.
The incorporated Italian company, thus, ceases all its activities as a juridical person, while the incorporating company takes over all its juridical relationships.
Juridical relationships prior to the merger instead, will continue to be governed y Italian laws and any litigation will be under Italian jurisdiction.
A merger is effective once the last record of the deed of merger in the business registry is filed, pursuant to Article 2054, even though a later date can also be chosen .
After the merger, instead, any complaint against the Italian company will be regulated by international law and creditors are prevented from requesting a declaration of bankruptcy, because of its loss of legal personality.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.