How to combine two LLCs into one enterprise?

Let’s imagine such a theoretical situation: You have the main LLC and a subsidiary company, which you decided to merge into one LLC. Or, for example, you have decided to buy someone’s business and merge it with your business to expand it. 

How does this reorganization work? Today, we will tell you how it looks like in practice and what to consider in the process of merging companies.

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Procedure for reorganization of the company by merging two LLCs

The procedure for merging two or more companies means merging them into one legal entity, provided that these legal entities cease to exist as separate entities and transfer their rights and obligations to the new company to which they have joined. All assets of the merged companies are also transferred to a common new legal entity

The step by step procedure will look as follows:

  • First of all, two or more companies must draw up a decision on reorganization by merger and establishment of a new company, and submit a notarized copy of the decision to the registrar to handle all formalities related to the termination of its business activity. 
  • Then each company must draw up the act on transfer of all rights and obligations to the newly created company. 
  • Only upon completion of the above steps a set of documents for establishing a new legal entity shall be submitted to the registrar. 

That is, the new company is formed on the basis of independent termination of merging companies. 

The new company (after completion of the termination procedure) must submit the following documents to the state registrar: 

  • an application for state registration of establishment of a legal entity;
  • a copy of the founders’ decision to create a legal entity certified by a notary;
  • the company’s charter;
  • a document confirming payment of the administrative fee;
  • a copy of the original (notarized copy) of the act of transfer;
  • documents for the state registration of termination of a legal entity (i.e., an old company);
  • a notarized copy of the passport of the person who is the ultimate beneficial owner of the legal entity.

Of course, when arranging the process, it is important to properly formalize the termination of the “terminated” LLCs and take into account many nuances in the constituent documents of the “new” LLC. Our lawyers will help you with this issue. 

Mistakes at any stage may result in the registrar’s refusal, or they may appear later, negatively affecting the work of your business.

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What happens to the founders of the two merging companies?

Such founders automatically become members of the new company. In addition, when forming the authorized capital, they distribute shares in proportion to their contributions.

Please note! In case of a merger, all assets and liabilities transferred do not cause tax consequences, neither for the companies that are reorganized, nor for the successor (new company). The fact is that the value of assets under the transferring act is not included in the gross income and is not subject to income tax.

If the reorganizing companies have a tax debt, then it is fully transferred to the successor company. 

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All employees who have been in labor relations with merging companies do not quit, but move to a new one. In this case, the record “Company A is reorganized into Company B through a merger” is made in the employment books. 

This reorganization procedure will be interesting for large enterprises that want to expand their business, as well as for those who want to penetrate into new areas or consolidate a competitive position in the target market.

If you want to reorganize your business, don’t hesitate to contact us. Our lawyers will take into account all aspects of your situation and will find the best option to achieve your goal.

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Publication date: 03/09/2020

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