Merger by Absorption — what it is, why it is carried out, and what is the procedure?

What is a merger by absorption?

Through a merger by absorption, the transferring company transfers all of its rights and obligations to the acquiring company as of the date of the merger. On the date of the merger, the transferring company ceases to exist without undergoing liquidation proceedings, while the acquiring company takes over the entire assets, rights, obligations and employees.

Why do clients decide to carry out a merger by absorption?

Clients most often opt for this status change in order to improve their business from the standpoint of cost-effectiveness, resource rationalization and a more efficient work process, and often also to strengthen their market position. Running a single company instead of several dependent subsidiaries reduces administrative costs and simplifies operations. For these reasons, this is the status change most commonly carried out in practice.

How is the procedure carried out?

The procedure is conducted before the Serbian Business Registers Agency and takes a minimum of 60–90 days. The transferring company and the acquiring company are required to file an application with the APR for publication of the draft merger agreement, together with a list of assets and employees. If the acquiring company owns at least 90% of the shares/equity in the transferring company, a simplified status-change procedure applies, under which the draft merger agreement must be published for a minimum of 30 days — instead of the usual 60 — before the shareholders' meeting at which the merger is decided. Once this period has expired, the merger agreement is signed, the companies adopt the relevant resolutions, and only then is it possible to file the application for registration of the merger.

What are the legal consequences of this status change?

As of the date the merger is registered with the Business Registers Agency, all rights and obligations of the transferring company pass to the acquiring company, and all business activities of the transferring company cease. The owner of the transferring company acquires a proportionate ownership interest in the acquiring company.

What happens if the acquiring company owns 100% of the transferring company?

If the acquiring company owns 100% of the transferring company (a so-called "subsidiary"), or if the owner of both the transferring company and the acquiring company is the same legal or natural person, there is no change in the ownership ratio within the acquiring company. If the acquiring company owns 100% of the equity of the transferring company, there is also no change in share capital, whereas in the other case an increase of the share capital may occur.