What is a merger?

When duly executed, a merger is a tax neutral company restructuring operation where one or more merging companies merge into the acquiring company in a way that all the assets and liabilities of the merging company will be transferred to the acquiring company by universal succession. Universal succession means that there is no need to identify the assets and liabilities transferred to the acquiring company as it is required in asset deal or in a liquidation process of the company. Because the contracts of the merging company are considered as its assets, as a basic rule they are transferred as such without a separate approval of the creditor or the contracting party.

Typically, the shareholders of the merging company receive shares of the acquiring company as a merger consideration. In order to maintain the tax neutral nature of the merger, maximum 10 per sent of the merger consideration can be paid in cash.

Most of the mergers are conducted as a subsidiary merger where the acquiring company already owns all the shares of the merging company. There are slightly fewer formalities concerning subsidiary mergers compared to other type of mergers.

If a third company gives the merger consideration, the merger is called a tripartite merger.

What can be achieved by merger?

Merger can be used to simplify the group structure and gain synergy benefits. Separate companies create costs and administrative burden and for example VAT consequences are to be considered in business transactions in between group companies. In addition to simplifying the group structure, merger also saves additional costs and diminishes the administrative burden. When there are no longer VAT liabilities for business transactions in between different group companies it is possible to sell and market different products and services together.

What should be considered?

By merger, the unknown debts and security, damage and other liabilities of the merging company are transferred to the acquiring company. Contracts of the merging company are also transferred without separate actions unless the contracts have specific clauses terminating the contract in case of a merger. Some licenses and permits may not necessarily transfer directly to the acquiring company, but they may require a separate notification to the relevant authority or a new application. Trademarks and other IP rights should be registered for the acquiring company.

Going through the liabilities and key contracts of the merging company before the merger is recommended in order the acquiring company to become aware of the risks of the merging company’s business and also to be able to continue the business activities of the merging company without unnecessary steps after the merger. Informing contracting parties and other stakeholders about the merger and the changes to e.g. contact, invoicing and other operative details make the transition and integration after the merger easier. Employees are to be notified about the merger and its consequences according to the Finnish Act on Co-operation Procedure, but separate co-operation negotiations are not required.

What is a merger procedure like?

Execution of a merger takes normally at least four to five months.

In the first phase the Board of Directors’ of the acquiring and the merging companies draft the draft terms of merger where the reasons for merger and merger consideration are detailed. Finnish Companies Act defines the content of the draft terms of merger. A notice from the auditor concerning the draft terms of merger is required.

Draft terms of merger are to be notified to the Trade register which ex officio commences the procedure for protection of creditors. The lengthy merger procedure is mainly based on the beforementioned creditors’ protection. As a part of the creditors’ protection, the companies participating in the merger must also inform the know creditors about the merger.

Separate resolutions of implementation of the merger are to be drafted according to the set timelines before the merger enters into force. The resolution in the merging company is made by the shareholders and in the acquiring company by the Board of Directors. Implementation of the merger means that the merging company is dissolved without a liquidation procedure.


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