The Legal Framework for Reorganizing an Entrepreneurial Company
Merger structuring in Georgia is one of the forms of reorganization of an entrepreneurial company. The law distinguishes three forms of reorganization: transformation of a company; merger of companies — by absorption or by combination; and division of a company — by split up or by spin off. The decision on reorganization is subject to the notification rules established for liquidation, which means that publication and the informing of parties are an integral part of the process. The correctly chosen form determines the final picture of taxes, the transfer of liabilities, and the rights of partners.
Forms of Merger and Their Consequences
In absorption, one or more companies, without opening liquidation proceedings, are absorbed by another — the acquiring — company through the full transfer of their assets and liabilities, in exchange for which the partners of the absorbed companies receive shares in the acquiring company. In a combination, two or more companies unite by founding a new company, to which the assets and liabilities of the combining companies are fully transferred by force of law. Division likewise takes two forms: a split up, where the company transfers parts of its assets and liabilities to two or more newly founded or existing companies, and a spin off, where one or more companies are separated from it. Merger and division are possible even in relation to a dissolved company, provided the distribution of its property among the partners has not yet begun. Importantly, companies participating in a merger or division may have different legal forms.
In a merger, the combined or acquiring company is liable for all obligations of the merged companies. In a division, the newly founded or acquiring companies are jointly and severally liable for the obligations of the divided company, but this liability is limited to the amount of the net assets attributed to each by the division. Upon completion of the reorganization, the registration of the absorbed, combined or divided company is cancelled without opening liquidation proceedings.
Decision Making and the Exchange of Shares
The decision on merger or division is taken by the general meeting of every participating company. In a limited liability company, a joint stock company and a cooperative, the decision is adopted by a majority of three quarters of the votes cast, and in other cases unanimously by all partners. Where a joint stock company has issued shares of different classes and the decision affects their rights, the vote is taken separately for the holders of each class of shares.
The exchange ratio of shares is a central element of the merger plan. Where maintaining the ratio is impossible, partners may receive, in addition to shares, cash compensation — in a joint stock company it must not exceed 10 percent of the nominal value of the shares to be issued to the partners. The law also protects the share structure: it is impermissible to issue shares of the acquiring joint stock company in exchange for shares held by the acquiring company itself, by a person acting on its instruction, or by the divided or absorbed company or such a person acting on its instruction.