By Aggeliki-Myrsini Spiliopoulou,
Nowadays, it is undeniable that the basic model of small businesses, functioning primarily to allow their owner to make a living, has been replaced by one of large corporations aiming for an income of more than millions, with the capacity to support many employees, members, stockholders, etc. The existence of many great corporations is a sign of the market’s well-being because it means that the competition is healthy, consumers are satisfied and there is wealth. An essential part of the development of the market is the ability, given by law, for corporations to transform their legal form to serve their purposes better.
Taking risks in new markets, finding partners, adapting to changes in the economy, and managing the economic state of a corporation are reasons that sometimes trigger companies to alter their legal form. For example, a company that can hardly survive as a general partnership may choose to become a limited liability company. This change would mean decreased responsibility for the stockholders, offering them more safety to protect their personal property. In the European Union, several directives are organizing the procedure that must be followed to legally make this kind of transformation, otherwise, not only will it be empty of meaning and invalid, but also the interests of the company’s debtors and other persons will be harmed. The most important text is Directive 2017/1132 EU, a compilation of many other directives, followed by every country in the European Union. Additionally, the German law “Umwandlungsgesetz”, with more than 300 articles, regulates the procedure for each form and serves as a foundation for the legislation in other countries, such as Greece.
One of the most important methods of transforming the form of a company’s legal form is through merger, a concept developed in the 19th century due to circumstances that larger companies required, a need that still now exists and has had positive effects on the national economy. That is why legal systems try to reinforce mergers, but always by putting limits to protect free competition. A merger is the combination of two or more companies, and it may happen in two ways: either by creating a third company that will inherit the assets of more than one merging company that will no longer exist or by one company acquiring other companies. In both ways, the result is essentially the same. The acquired company will transfer every one of its assets to the new company that will be formed by the transformation and the last will inherit every one of its rights and obligations (as assets are considered to be the remaining assets and the liabilities, and it is equal to the company’s net worth), without going through the process of liquidation. Shareholders or members (when it is about a general partnership) of the acquired company will exchange their shares from the old company with an agreed amount of shares from the new one that will be formed.
Through this process, new companies will be created, and the stockholders will gain shares in a larger, wealthier, and more stable company. However, it cannot be claimed that there are no risks. Even the fact that it was needed to make strict regulations underlines the existence of potential dangers: debtors who may never recover their money, stockholders who may be deceived in the process and not receive the shares they deserve – or may receive more than they should – and the creation of a market full of monopolies are common issues that each legal system want to prevent.
Reference
- Ελίζα Δ. Αλεξανδρίδου. Δίκαιο Εμπορικών Εταιριών, Προσωπικές & Κεφαλαιουχικές Εταιρίες- Μετοχικοί Μετασχηματισμοί. Νομική Βιβλιοθήκη, 3η έκδοση, Θεσσαλονίκη 2019
