The merger of limited liability companies is one of the types of conversion that the UmwG makes available for the reorganisation of companies. The merger serves the purpose of integrating undertakings, i.e. the merger of, for example, two limited liability companies into an existing company or a newly formed company. In the following article you will learn more about the merger as well as about the civil and tax approach.

In the video we explain what in civil law & notarial must be observed & how such a merger can be made tax-neutral.

1st introduction

The most important decision when starting a company is primarily the choice of legal form. Since a company goes through different stages of development and has to adapt to the constant innovations by the legislature, possible beneficial restructurings since the beginning of 1995 are regulated by the Conversion Act and the Conversion Tax Act. [1] With the decision of the SEStEG in 2006, among other things, the conversion tax law was extended and the German legal provisions were adapted to those of the European Union. Cross-border mergers with the Federal Republic of Germany retaining the right to tax were made possible. [2] Due to this complexity, the Federal Ministry of Finance also published the conversion tax waiver by letter dated 11.11.2011. This decree serves as an aid for the application of the SEStEG.[3]

Considering a statistic on the worldwide emergence of mergers & acquisitions, the transactions of “business purchases/sales and mergers”, it is clear that since records began in 1985, conversion processes have increased massively. While there were 3,287 mergers and acquisitions in 1985, the number in 2018 stands at 48,577. [] 4]

In principle, however, the question arises as to why a restructuring of the companies is attractive for shareholders or investors. is a partner. Reasons for this may lie first of all in advantages in the general comparison of the different legal forms and their applicable rights, such as publication obligation, liability or taxation. [5] The trigger may also be the avoidance of insolvency proceedings or the strengthening of the financial and economic situation. But also the transformation and change of strategies or products within society can be reasons for restructuring. [6] In order to make a restructuring attractive for tax liabilities, the tax revenue of conversions must be kept as low as possible.

This seminar paper specializes primarily in the foundations of the merger of two corporations. First of all, it refers to basic information and explains the civil procedure of a merger by considering two different methods, here the merger at the start and the new start. After presentation of various commercial accounting approaches and their consequences, the tax effects of the transferring and also acquiring corporation and that of the shareholder are discussed. Reference is made to the requirement of a tax-neutral merger and it is determined in which situations a time or intermediate value approach makes sense. In general, relationships and differences between the transfer profit and the transfer profit are described and refer to different tax types and tax obligations.

2nd Civil Approach

2.1. General

The merger is legally recorded in the second book of the conversion law. The basis for merger operations are paragraphs 4 to 35 of the Conversion Act. Subsequent paragraphs, here up to § 122 UmwG, refer only to specific provisions of individual legal forms. [7]

Contrary to other federal or provincial laws, a merger pursuant to § 1 UmwG is only permitted to legal entities with registered office in Germany. All assets and all rights and obligations are transferred from the transferring legal entity to the assuming legal entity, so-called universal succession. [] 8]