Mergers and acquisitions: merging companies without liquidation

Mergers and acquisitions of companies have become a routine part of the market economy. Increasing competition is forcing companies to look for options that will help them, for example, to improve their position and increase their market share. Mergers and acquisitions offer a way to achieve this.
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The importance of mergers and acquisitions

The terms merger and acquisition have been adopted from the American legal standard. A merger is a process whereby companies are merged or combined without liquidation. The main reasons why companies decide to merge are, for example, to restructure the entities, to improve the economic situation of the company or to gain a larger market share.

A merger is also beneficial when filing a tax return. If you have more than one company, you have to file a separate tax return for each of them. When you merge or consolidate companies into one, you can achieve significant economies of scale and synergies.

An acquisition is usually undertaken when one company or investor acquires a majority of the equity interest in another company. Acquisition may also mean the acquisition of only a part of the equity interests in another company, or the joint acquisition of equity interests in a company by multiple entities.

What is an acquisition?

Acquisition generally refers to the takeover of one company by another. It means that an investor acquires an ownership interest in the target company (a share of the profits). If there are multiple investors in a company after an acquisition, it is necessary to set up relationships between them. For example, through call and put options, the right to join in the transfer of shares or pre-emptive rights, or agreements between investors to exercise voting rights.

The legal and tax shield must also be determined in the transaction of selling the company. Likewise, it is important to compare the offered price with the fair price. The latter should be calculated through an EBITDA multiple (earnings before interest and taxes plus depreciation and amortization) or through the free cash flow method (after-tax earnings are net of only non-cash items – depreciation, amortization, provisions). The seller must be prepared for the sale by separating non-core assets and conducting a pre-acquisition audit.

What is a merger?

A merger in the form of a consolidation refers to the uniting of two or more companies into one. After merging, the companies cease to exist as separate business entities. Their assets are transferred to the newly created company, which becomes the legal successor of the dissolved companies. The new company may, after the merging process, operate under a new business name.

A merger in the form of an amalgamation means that one company absorbs the other company, which ceases to exist. At the same time, the company that is not dissolved becomes the legal successor of the dissolved company. This form is preferred if one of the two companies has public licenses that need to be maintained. That is because they do not automatically transfer to the new entity when the merger takes place, but are subject to new applications and procedures.

Grafické znázornenie 

Fúzia vo forme splynutia
Spoločnosť A + Spoločnosť B = Spoločnosť C 

Fúzia vo forme zlúčenia
Spoločnosť A + Spoločnosť B = Spoločnosť A


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Pozn. Spoločnosť A ostáva existovať bez podielu v spoločnosti C.

Procedure for merging companies

Mergers are among the more challenging procedures with clearly defined rules and specifications.

  1. The first step is the adoption of a merger decision. We recommend setting the accounting record date and the effective date of the merger on the same date. You must also agree on a new organisational structure with defined responsibilities for the members of the bodies and the management. Also make sure that the value of the liabilities of the successor company does not exceed the value of the assets.

  2. The shareholders’ agreement should address liability for concealed and unaccounted obligations. These are transferred from the dissolving company to the successor company or may appear in the successor company. The new model of corporate management should provide for a regime for exits, cross-checking, as well as rules for the entry of a third party into the company.

  3. The notice of the drafting of the merger agreement must be submitted to the tax administrator 60 days before the meetings of the general assembly that should approve it. Invitations to general meetings are sent together with the interim and year-end financial statements to the individual shareholders.

  4. The social and economic consequences and the reasons for the transition shall be discussed with the employees 30 days before the merger is due to take effect.

  5. Under certain conditions, a report by an independent expert (an auditor) is required. His task is to make an independent assessment of the implications in the context of certain economic issues (assessment of the financial health of the company). For example, whether the joint assets do not exceed the joint liabilities and whether the recognised receivables and payables correspond to the economic reality.

  6. If there is agreement among all the partners, there is no need for an expert’s report, a directors’ report or interim accounts.

  7. The final step is the registration of the merger in the commercial register. 


The merger and acquisition process only applies to companies that:
• are not in liquidation,
• are not bankrupt,
• are not in restructuring proceedings,
• are not in dissolution proceedings, and cannot be dissolved by or pursu

Procedure for taking control of the company

The typical methods of acquiring control of a company (acquisition) are the transfer of a business share (share deal) and the transfer of the business itself or its components (asset deal), which usually involve the following procedure:

  1. The initial stage is an informal negotiation of the commercial details of the transaction, which is then translated into writing in the form of a Memorandum of Understanding (MoU) or Letter of Intent (LoI).

  2. The due diligence phase in legal, tax, commercial, financial and possibly other areas, depending on the focus of the business, is a key process in order to establish a complete picture of the target company’s operations, potential defects, and also the basis for pricing the assets to be acquired.

  3. The signing of a SPA traditionally does not result in the transfer of the company. It is usually subject to the fulfilment of conditions precedent.

  4. Closing or consummation of a transaction involves the execution of other contracts, agreed to by the parties under the SPA, and other acts, the execution of which is usually evidenced by a Closing Memorandum.

  5. Post-closing is the final stage of the transaction, the process of which depends on the terms agreed in the SPA. The parties may have stipulated by them an additional adjustment of the purchase price, assistance during a transitional period to facilitate the buyer’s takeover of the business or its possible assertion of defect claims.

What are the benefits of merging and acquiring companies?

There are several benefits of merging companies, including:

  • acquisition of know-how,
  • increase in market share,
  • improvement of market position compared to competitors,
  • improved solvency,
  • expanding the business area,
  • possibility of expanding into new markets,
  • minimising competition,
  • reduction of costs,
  • improving credit opportunities,
  • achieving higher profits.
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Why handle a merger and acquisition through a law firm?

f you decide to increase the efficiency of your business with a merger and acquisition, you must take into account the complexity of the process. For most companies, this is not a routine matter, which is why you should contact an experienced law firm. Any mistake can prolong the whole process or it may not even succeed.


Failure to comply with the rules can result in the refusal to register the merger in the commercial register. In addition, every avoidable mistake causes an increase in costs that will make the whole process considerably more expensive.

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When companies merge, all the assets of the merging company are transferred to the acquiring company. The latter becomes the legal successor. The legal effects of the merger are effective from the date of registration in the commercial register, thus the dissolved company loses its status of an independent business entity.

Thus, you file your VAT return until the legal entity is officially merged and entered in the commercial register. Only after the company has been dissolved, entered in the commercial register and its business assets transferred to the successor does the acquiring company become a single taxable entity. For example, Company A was a quarterly VAT payer and the successor Company B was a monthly VAT payer. Company B files a single tax return for its monthly period and a tax return for the quarterly period for the defunct Company A under its VAT number at its competent tax office.

The last change regarding merging and amalgamation of companies was made by the amendment of Act No. 264/2017 Coll., which amended Act No. 513/1991 Coll., the Commercial Code. The amendment is intended to prevent dishonest mergers and acquisitions of commercial companies. Thus, legislation is generally changed if, for example, it is ineffective or outdated.