Reorganization of Legal Entities
Legal entities may cease to exist through reorganization. Reorganization means the termination of a legal entity without a liquidation procedure.
The decision to reorganize a legal entity is made by its participants, or by a court in cases specified by law.
Legal entities may be reorganized through merger or division.
Forms of merger of legal entities:
- Absorption – where one or more legal entities are merged into another legal entity, to which all rights and obligations of the reorganized entities are transferred;
- Consolidation – the unification of two or more legal entities into a new legal entity, which assumes all rights and obligations of the merged entities.
Forms of division of legal entities:
- Spin-off – the transfer of rights and obligations of a reorganized legal entity to other existing legal entities;
- Split – the creation of two or more new legal entities from one reorganized legal entity, each receiving part of the reorganized entity’s rights and obligations.
When a reorganized legal entity ceases to exist, and its participants are liable for its obligations, they remain subsidiarily liable for three years for obligations incurred before the transfer of rights and obligations to the continuing legal entity, regardless of the terms of the reorganization.
The management bodies of legal entities involved in the reorganization must prepare reorganization terms, which must include:
- Information about all legal entities involved (name, legal form, registered office, code, register, etc.);
- Method of reorganization, entities that will cease to exist, and those that will continue after the process;
- Procedure, conditions, and timeline for participants in the ceasing legal entity to become participants in the continuing entity, as well as any compensation for participants;
- The moment when the rights and obligations are transferred to the continuing legal entity;
- Additional rights granted to management bodies, administrative staff, or experts evaluating the reorganization conditions.
A reorganization may be declared invalid only by a court and only in the following cases:
- Required documents were not published or submitted to the Register of Legal Entities;
- Decisions made by participants or management bodies of legal entities are invalid;
- Mandatory legal requirements regarding reorganization were not fulfilled.
We provide consulting on company reorganization and prepare all necessary documents.