Cyprus constitutes a popular destination for mergers and acquisition transactions; these can be local, between Cyprus entities, or at a cross-border, EU level. Being at the crossroad where the East meets the West and one of the most world’s most competitive tax regimes are just some of the advantages Cyprus entities enjoy.
Cyprus Companies Law, Cap 113, provides the procedure through which two or more Cyprus companies amalgamate into one entity. This can be achieved through the dissolution of one of the merging companies without going into liquidation and the transfer of all its assets and liabilities to the other party (company). Alternatively, all of the merging companies may dissolve without going into liquidation and transfer all of their assets and liabilities to a new estamblished company for this purpose.
Chapter II of EU Directive 2017/1132/EC provides for cross-border mergers, i.e., the merger of two or more limited liability companies established in different EU Member States. The Directive only allows for mergers of companies which are acceptable under national law. Such mergers are governed by and subject to Articles 201H-201KZ of the Cyprus Companies Law.
To bring a merger about, each of the Merging Companies will need to put together and approve a Merger Plan detailing the terms of the Merger and in turn seek its Judicial approval. The Court will only approve a merger if it is approved by a majority of 3/4 of Shareholders and the Court is satisfied that the merger will not adversely affect the rights of the Merging Parties’ creditors and employees.
Each of the Merging Companies drafts the terms under which the merger will take place. Once the Merger Plan is approved at the General Meeting of each Company, it is presented to the Court for a final approval. The Cyprus entity will then need to submit the Merger Plan to the Registrar of Companies. An equivalent procedure will need to be completed in the EU member state in which the counterparty operates.
Business reorganisation in the abovementioned manner is likely to result to increased profits through the reduction of administration costs and the enjoyment of the competitive tax rates offered Cyprus, including the distribution of tax-free dividends in some instances.
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