A merger is a transaction by which two or more companies integrate into a single entity through the transfer of their assets as a whole and by providing the shareholders of the dissolved companies with shares or stakes in the resulting entity, which may be either a newly created company or one of the pre-existing companies.
This article addresses the general aspects of the intra-EU cross-border merger in Spain following the enactment of the Law on Structural Modifications of Commercial Companies in June 2023.
Regulatory Framework
The cross-border merger is primarily regulated by Directive (EU) 2019/2121 of the European Parliament and Council, dated November 27, 2019, which amends Directive (EU) 2017/1132 concerning cross-border transformations, mergers, and divisions.
The Spanish government implemented this directive through Royal Decree-Law 5/2023 on June 28, which repeals Law 3/2009 from April 3. This New LME regarding structural modifications came into effect in June 2023.
The New LME provides that, in such transactions, the personal laws of the participating companies will be considered, notwithstanding the applicable regulations for European public limited companies.
It also establishes that Spanish companies must comply with the requirements and procedures outlined in the New LME, highlighting the fundamental principle of freedom of establishment, a cornerstone of European Union law.
In a legal context, it is crucial to remember that relevant sectoral legislation, such as that governing energy and other regulated industries, will apply based on the companies’ sectors.
Moreover, the New LME expressly protects the rights of participating companies’ employees, shareholders, and creditors. Several articles of the law recognise specific rights for these groups:
- Employees can be informed, consulted, and participate in the merger project.
- Shareholders have the right to sell their shares in case of disagreement with the merger.
- Creditors can express their opposition, and the pre-merger certificate must reflect this.
General Considerations
Identity of the Participating Companies
Spanish regulations require that companies involved in a cross-border merger be business corporations established under the laws of member states within the European Economic Area. The company must have its registered office, central administration, or primary place of business within this area.
In Spain, the types of companies eligible to participate in such mergers include public limited companies (P.L.C.), limited liability companies (L.L.C.), and partnerships limited by shares.
Joint Merger Plan
The companies involved in the merger must create a joint merger plan detailing the merger’s aspects. The minimum required content includes:
- Identity of the participating companies
- Identity of the resulting company after the merger
- Exchange ratio of shares, stakes, or quotas
- Potential impact on industry contributions or ancillary services
- Date from which the holders of new shares, stakes, or quotas will have the right to participate in profits
- Date from which the merger will have accounting effects
- Information on the valuation of assets and liabilities
- Dates of the accounts of the merging companies used to set merger terms
- Certification of compliance with tax and Social Security obligations (a new requirement compared to previous regulations)
Merger Report by the Management Body
The participating companies must prepare an explanatory report justifying the merger from an economic and strategic perspective and present it to shareholders, partners, and employee representatives.
Legal Procedure in Spain
The cross-border merger process in Spain consists of three stages:
Preparation Stage
The standard merger plan and any necessary reports from the management body and independent experts are prepared during this stage.
Additionally, the company publishes or individually communicates a notice of the shareholder meeting to the partners at least one month before the meeting. The New Structural Modifications Law (Nueva LME) requires the publication of the following information:
- Legal form, company name, and registered address of the participating companies
- Registration and registration number of each company
- Measures taken to protect the rights of creditors, employees, and partners
- Website providing free access to the merger plan and other relevant documents.
Approval Stage
The shareholders’ or partners’ meetings of both companies must approve the merger agreement according to the legally established procedure. At this stage, shareholders or partners can express their agreement or disagreement with the merger.
Execution stage
The parties formalise the merger agreement before a notary, register the new company in the Commercial Register, and make the relevant publication.
Legal Control by the Commercial Register
When a company emerges from the merger, the Spanish Commercial Registry (RM) will verify that the parties involved have fulfilled all formalities, required conditions, and necessary procedures before proceeding with the registration process.
The participating companies must present:
- Prior Certificate, which the RM will accept as conclusive evidence of correct completion of the required procedures and formalities in the member state of origin.
- Merger Plan approved by the General Meeting, unless unnecessary.
- Proof of the measures taken regarding employee participation.
Once the verifications are complete, the RM will register the merger in the record for the resulting Spanish company. This registration will include the date, indicate that it results from a merger, and provide the registration number. Additionally, it will list the company names and legal forms of the participating companies in their state of origin.
Furthermore, the New Structural Modifications Law (Nueva LME) stipulates that the RM will notify the registration to the commercial register of the member state of origin through the system of interconnection of registers.
The intra-EU cross-border merger represents an excellent opportunity for foreign companies to expand into the Spanish market. However, it also presents significant legal challenges, particularly at the procedural level, as the Commercial Registry (RM) must conduct strict legal oversight in such operations.
To successfully handle a cross-border merger within the European Economic Area, foreign companies must seek specialized legal advice. This will ensure compliance with Spanish regulations and help mitigate potential risks.
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