Acquisition of Limited Liability Company

ACQUISITION OF LIMITED LIABILITY COMPANY

Pursuant to the Companies Act (official gazette of the Republic of Croatia ˝Narodne novine˝, Nos. 111/93, 34/99, 121/99, 118/03, 146/08, 137/09, 152/11, 111/12, 68/13, 110/15, 40/19 ) one or more limited liability companies may be acquired by another limited liability company without carrying out the liquidation procedure by transferring the entire assets of one or more acquired companies to the acquiring company in exchange for shares in that company.  The purpose of this article shall be to explain the process of the acquisition of limited liability companies, as defined by the previously mentioned act.

Agreement on the acquisition of a limited liability company

Pursuant to the Act, the acquisition of limited liability companies is possible even when a decision has been made to terminate the acquired company, or a decision has been made to terminate some of the merging companies, even if such termination might have been avoided.
The acquisition of limited liability companies is carried out by means of a decision passed in the form of an Acquisition Agreement. Such an Agreement is concluded by the management boards of the companies participating in the acquisition, and must be concluded in the form of a notarial instrument. The agreement must specify the nominal amount of each share which must be given to the member of the acquired company in the acquiring company. If the shares are acquired by increasing the share capital and entail rights and obligations different than that arising from the existing shares in the acquiring company, such deviations must be foreseen in the acquisition agreement.

In addition to the above, the acquisition agreement must plainly specify the members of the acquired company and the nominal amounts of the shares which already exist in the acquiring company, and the members of the acquired company should also receive them. The acquisition agreement is valid if the members of all companies participating in the acquisition agree to it by means of decision. General meetings may approve the draft of the acquisition agreement agreed upon by the companies' management boards even before such agreement is concluded. A three-quarters majority of the votes cast is required to make a decision.
The Articles of Association cannot stipulate that a smaller majority is required therefor. If contributions for the shares in the company have not been fully paid to the acquiring company, all present members of the acquired company must vote in favour of the decision of the members of that company. Members who were not present when the decision is made must also agree with the decision. The decision must be made in the form of a notarial instrument. The company acquisition agreement be enclosed thereto.

Acquisition of limited liability companies - Implementation of the acquisition

Pursuant to the Act, the acquiring company is not allowed to increase the share capital in order to carry out the acquisition if:

(1) it holds business shares of the company being acquired,

(2) the acquiring company holds its own business shares

(3) the acquired company holds business shares of the acquiring company for which contributions have not been paid in full, but which should have been paid.

On the other hand, the acquiring company is not obliged to increase the share capital if:

(1) it holds its own business shares,

(2) the acquired company holds the business shares of the acquiring company for which contributions have been paid in full. Establishment of a limited liability company

It is important to note that the case in which business shares are held by a company is equal to the case when they are held by a third party on behalf of that company. If the acquiring company pays additional contributions in cash, they may not exceed a tenth of the total nominal amount of the given business shares in that company.

Application for registration of acquisition in the court register

Every company must submit an application to the registration court for the entry of the company's acquisition into the court register in which it is already registered. When submitting the application, the board members must declare that the decisions on acquisition were not challenged within the prescribed period or that the challenge was legally rejected.
In the event that some members of the company were not present at the time of the decision on acquisition, the board members of the acquired company must declare that all members of the company agreed with the decision on the acquisition of the company.
The acquisition agreement, minutes with decisions on acquisition, and, if the acquisition required the approval of a state authority, such approval must be enclosed to the application, either as originals or as certified transcripts or copies. The final financial statements of the acquired company must also be enclosed to the application for registration in the court register in which the acquired company is registered. The acquiring party shall also enclose a list of company members signed by the management board members to the application for registration in the court register in which the company is registered.

Acquisition of limited liability companies - Registration of acquisition

The acquisition of limited liability companies can be registered in the court register in which the acquiring company is registered only after it is registered in the court register in which the acquired company is registered. If, in order to implement the acquisition, the share capital of the acquiring company is increased, the acquisition cannot be entered in the court register before the share capital increase is entered in that register.
By entering the acquisition in the court register of the competent court in the seat of the acquiring company, the assets of the acquired company and its liabilities are transferred to the acquiring company. If there are obligations on the part of the acquiring company from bilateral agreement that neither party has fully fulfilled by the time of the acquisition, and which are mutually incompatible or whose fulfillment would be particularly unfair for the acquiring company, their scope is determined fairly, taking into account the rights of all sides under the agreement.
The merged company ceases to exist on the date of entry of the acquisition in the court register in which the acquiring company is registered. It is not necessary that it be specifically deleted from the court register. By registering the acquisition, the members of the acquired company become members of the acquiring company.
The court which keeps the court register in which the acquiring company is registered must inform, ex officio, the court that keeps the register in which the acquired company is registered about the date of entry of the acquisition. Upon receipt of this notification, the court competent in the seat of the acquired company must ex officio enter a note on the date of entry of the acquisition in the register of the court competent in the seat of the acquiring company and send that court all company documents in their possession for safekeeping.

After the entry of the acquisition in the court register in which the acquired company is registered, an action to establish that the acquisition decision made by the acquired company is null and void must be motioned against the acquiring company.

Protection of creditors

Creditors of the companies participating in the acquisition must be given security, if they for this purpose report to the court register in which the company whose creditors they are is registered within six months of the publication of the entry of the acquisition, and they are not entitled to have their claims settled. Creditors of the acquiring company shall only be entitled to have their claims settled if they can prove that the acquisition of the companies jeopardises the fulfillment of their claims. Creditors must be warned of their right during the publication of the acquisition. Creditors with a priority right of settlement from the bankruptcy estate in case of bankruptcy are not entitled to request security.

Liability for damage caused by members of the bodies of the acquired company

The members of the management board and the members of the supervisory board (if any) of the acquired company are obliged as joint and several debtors to compensate for the damage incurred by that company, its members and creditors as a result of the acquisition.
Neither the members of the management board nor the members of the supervisory board, who acted with due care when auditing the company's assets and concluding the acquisition agreement, are not liable for the damage. For these claims, as well as for all other claims raised for and against the acquired company, the company shall be treated as if it still exists.
Claims and liabilities are not acquired by acquisition. These requirements expire five years from the date of publication of the entry of the acquisition in the court register in which the acquired company is registered.
Claims for compensation in question may only be made via a special representative appointed by the court as proposed by a member or by a creditor of the acquired company. The proposal may be made only by those creditors who are not entitled to request settlement from the acquiring company.
Stating the purpose of his appointment, the representative must invite the members and creditors of the acquired company to report their claims within an appropriate period, which shall not be less than one month. The representative must use the amount received from the acquired company to settle the claims by all of the creditors of that company, if they have not already been settled by the acquiring company or if they have not been given security. The rest is distributed to the members of the company. Creditors and members who fail to submit their claims in time shall not be taken into account during the distribution.