Merger

What it means

A merger transforms companies: in an absorption one ceases and its estate passes to an existing company; in an amalgamation both cease and a new one arises. Assets, liabilities and staff pass as a whole.

It is not a purchase: what changes is not the owner of the shares through a sale but the companies themselves. So it is not done by a share transfer agreement but by a transformation project with a decisive date.

A merger differs from the sale of a business. In a sale the buyer acquires the assets for a price and the selling company carries on; in a merger the ceasing company disappears without liquidation and its members receive an interest in the successor instead of money. A merger therefore turns on the exchange ratio of interests, not on a purchase price.

How it works in practice

The process is formal: the project, a valuation, approval by the general meetings, creditor notices and the register entry. Interim accounts are prepared as of the decisive date.

Tax comes with it: carrying over tax losses, continuing depreciation and the fate of VAT registrations. These are settled before the project is signed, not after the entry.

Among smaller firms the most common case is merging sister companies of the same owner, so that one set of books, one set of accounts and one tax return fall away. For such a merger we prepare the extraordinary financial statements of the ceasing company, the matching opening balances at the successor and the transfer of analytical accounts so they can be traced back later.

What to watch out for

Accounting preparation gets underestimated: mismatched intercompany receivables and payables cannot hide after the merger, because the mutual balances are eliminated and the difference lands in profit or loss.

From the decisive date the ceasing company’s transactions are treated in the books as the successor’s, but legally it ceases only when the register entry is made. If the entry is delayed, the company keeps books for two entities in the meantime, files returns for both and must watch which VAT number it invoices under, or documents will need correcting.