Take-over (also referred to as merger through absorption) is a form of transformation. Companies participating in such transformation may be of different types – most often Limited Liability Companies (LLC) and Joint-Stock Companies (JSCo.).
Upon take-over the entire property of one or more companies (transforming companies) is transferred over to one existing company (receiving company) which then becomes their legal successor (universal succession). The transforming companies are terminated without liquidation (which is otherwise needed upon dissolution of an LLC or other company). Upon transformation by merger through absorption the shareholders or stockholders in the transforming companies become shareholders or stockholders in the receiving company. The stocks or shares acquired after the transformation must be equivalent to the fair price of the stocks or shares in the transforming companies held prior to the transformation.
The merger through absorption procedure is set forth in Art. 262 et seq. of the Commerce Act.
Prior to resolving on the transformation the transforming and receiving companies should enter into a transformation agreement – in written form with notarization of the signatures. The transformation agreement arranges the steps to be followed in carrying the transformation into effect. Its required minimum content is set out in Art. 262g, par. 2 of the Commerce Act – special attention needs to be paid to the exchange ratio of the shares or stocks determined as of a specific date (which may not be earlier than 6 months prior to the date of the agreement). The transformation agreement takes effect from the date of its execution for each of the companies.
The executive body of each of the companies participating in the transformation needs to prepare a written report on the transformation containing detailed legal and economic justification of the transformation agreement, especially of the exchange ratio; the report needs to indicate details about the appointed auditor, as well as details about the property being transferred over to the receiving company (when increasing its registered capital). A report should not to be prepared where all shareholders or stockholders in the participating companies have agreed in writing to that.
The transformation agreement and the reports of the executive bodies should be submitted for announcement in the Commercial Register – to be made simultaneously in the files of each of the companies. Such announcement (when relating to capital companies) should be made not less than 30 days prior to the date of the session of the General Meeting which is to be held for resolving on the transformation.
The transformation agreement must be audited by a designated auditor for each of the companies. The auditor should be appointed by the executive body or the managing partners; at the joint request of the executive bodies the registry officials with the Registry Agency may appoint a joint auditor for all companies participating in the transformation. The auditor (examiner) must be a registered auditor. Transformation audit may not be carried out where all shareholders or stockholders in the participating companies have agreed to that.
The resolution on transformation needs be adopted separately by each of the companies; by such resolution the transformation agreement is to be approved as well. The Minutes also need to include other resolutions – with regard to all changes resulting from the transformation. The resolution on transformation needs to be adopted by the General Meeting by a majority of 3/4 of the capital (in the case of an LLC) and 3/4 of the represented voting stocks (in the case of a JSCo.). The resolution on amending and supplementing the Articles of Association or the By-Laws of the receiving company, necessitated by the transformation, needs to be adopted by each of the companies.
The registered capital of the receiving company may be increased for the purposes of the transformation, insofar as it is necessary to create new shares or stocks for the shareholders or stockholders in the transforming companies. The amount of the increase may not be larger than the net worth of the property being transferred over to the receiving company upon the transformation. The net worth of the property should be established as the difference between the fair prices of the rights and the obligations which upon the transformation are transferred over to the receiving company. When increasing the registered capital of the receiving company the auditors for all companies should also prepare a joint report on whether or not the said requirement has been complied with.
The executive body of the receiving company is the one entitled to request the entry of the take-over in the Commercial Register. The application for such purposes should be submitted not later than 8 months after the date as of which the exchange ratio has been determined (in accordance with the transformation agreement). Entry of the requested merger through absorption will be allowed by the registry officials in the files of the transforming and receiving companies not earlier than 14 days after the application has been submitted. The transformation takes effect from its entry in the Commercial Register.
A special application needs to be filed with the Commercial Register for the transformation by take-over to be registered – a standard form application V21 (В21 in Bulgarian).
Depending on the specifics of the particular situation it might be also necessary to submit additional applications (form A4, A5, etc.) for entering changes about the receiving company (for example, increase of its capital and/or changes in its management). For the preliminary publication in the Commercial Register of documents relating to the transformation (as already explained here above) a G1 application form is to be used.
The applications may be filed electronically (via the Internet) as well – by being signed with an electronic signature. A lawyer may be authorized for such purposes as well – the power of attorney should be explicit but does not require any notarization of the signature.
The transformation agreement and the Minutes with resolutions of the companies participating in the transformation need to be enclosed to the application. Besides them other documents need to be enclosed to the application as well:
Amended Articles of Association or By-Laws of the receiving company;
Reports of the auditors;
Consents under Art. 262p of the Commerce Act, as well as other consents (if available);
List of the persons acquiring stocks, shares or membership in the receiving company, type of the membership, as well as details about any existing pledges and attachments;
Declaration of the depositories to the effect that the interim certificates or the stocks have been handed over to them or, respectively, evidence that the circumstances under Art. 262w, par. 5 of the Commerce Act have been declared to the Central Depository;
Certificates that the National Revenue Agency has been notified of the transformation pursuant to Art. 77 of the TSIPC.
Other documents need to be presented as well, such as invitations and other documents evidencing the proper calling of the General Meeting, a declaration on the truthfulness of the stated for registration circumstances and acceptance of the submitted for announcement acts, a document for paid state fee, etc.
In certain situations it might be necessary to present other specific documents as well, such as a certificate for a shareholder (legal entity from a foreign country), prior permission from the Commission for Protection of Competition or other authorities, etc.
Fees and Other Costs
Pursuant to Art. 16a, par. 1 of the Tariff on the State Fees Collected by the Registry Agency, the state fee for entering a transformation of companies into the Commercial Register is 180 Levs. Pursuant to par. 2, when the application is filed electronically, including by an authorized to that end lawyer, the due fee would be in the amount of 90 Levs.
The due state fee for publication of documents in the Commercial Register amounts to 40 Levs (or 20 Levs if documents are submitted electronically) – pursuant to Art. 16b of the aforementioned Tariff.
Additional costs will apply as well, such as fees for notarization, retained auditor services, etc. Information about the due attorney fee may be found on page Fees.