There comes a moment in the life of many companies when the corporate structure gets too small or, the other way round, too tangled. Joining another business to gain size, separating a line of activity that already works on its own or simplifying before a generational handover are business decisions that, in legal terms, are called mergers and divisions. They sound like something for big corporations, but any Spanish limited company (SL) can end up there.
Mergers and divisions: what they are exactly
A merger brings two or more companies together into one: the assets, the shareholders and the activity end up living under the same legal roof. It can be done by one company absorbing another or by creating a new one that takes in all of them.
A division goes the opposite way: a company’s assets are split and transferred to another company, either an existing one or one newly created. The law sets out three forms: the full division, in which the company is split completely and wound up; the partial division, in which an economic unit is carved out and the original company stays alive; and the segregation, which also transfers an economic unit but with one difference that changes everything.
That difference is about who receives the shares in the recipient company. In a merger and in the first two forms of division, the shareholders receive them. In a segregation they go to the dividing company itself, which ends up with a subsidiary instead of handing anything to its shareholders. Picking the wrong form changes who ends up owning what.
What all of them do share is what sets them apart from an ordinary sale and purchase: the assets are transferred as a block, by universal succession. That is why the law groups mergers and divisions under the name of structural modifications and surrounds them with safeguards.
The three situations that lead to mergers and divisions
Mergers and divisions rarely come from a legal impulse. They usually arrive along one of these three paths:
- Gaining size. Two businesses that already work side by side decide to stop being two.
- Separating what already stands alone. A line of activity that has grown inside the company and is asking for a life of its own: its own accounts, its own shareholders and its own risk.
- Preparing a generational handover. Simplifying the structure before the children come in or the founders step out, so the split does not end in conflict.
None of the three is a purely legal decision. The legal part comes afterwards, to give shape to something that has already been discussed in the boardroom or at the kitchen table.
The legal framework for mergers and divisions since 2023
The rule that governs mergers and divisions in Spain today is Royal Decree-Law 5/2023, of 28 June, published in the BOE on 29 June of that year. Its Book One deals with structural modifications: transformation, merger, division and global assignment of assets and liabilities, as well as cross-border operations.
That text replaced the earlier Law 3/2009, of 3 April, on structural modifications of commercial companies, repealed with effect from 30 June 2023. If you are working with a template or a manual dated before then, it is worth reviewing it: the framework changed.
What the law requires of mergers and divisions
Book One opens with a block of preliminary and common provisions that apply to mergers and divisions. Translated into what you will actually have on your desk, there are four pieces.
A common draft terms document
The document that explains what is being joined or separated and on what conditions. It is the backbone of the operation: the reports, the shareholders’ meeting resolutions and the later registration all hang from it. If the draft is weak, everything that comes after it will be weak too.
A balance sheet with a recent date
In mergers and divisions, the last approved annual balance sheet works as the merger balance sheet as long as it was closed within the six months before the date of the draft terms. If it does not make that window, a more recent one has to be drawn up, following the same presentation criteria as the annual accounts.
Where the company is required to be audited, the auditor has to verify it, and the shareholders’ meeting that decides on the operation approves it too. That requirement falls away in the cases where the law does not call for a shareholders’ resolution, such as the absorption of a wholly owned company, where the absorbed company’s meeting does not have to approve the merger.
Protection for shareholders and creditors
The law devotes a section of its own to whoever does not take the decision but does carry its consequences, and it gives them specific deadlines. In mergers and divisions, a shareholder who did not vote in favour and believes the exchange ratio is not the right one can claim a cash payment before the Commercial Court, within two months of the resolution being published.
Creditors whose claims predate the publication of the draft terms and who do not consider the guarantees offered to be enough have one month in domestic operations to notify their disagreement and go to the Commercial Registry or the Commercial Court, depending on the case, so that adequate guarantees are set. Watch out for a widespread assumption: none of these claims halts the operation or blocks its registration.
Publicity and registration at the Commercial Registry
In mergers and divisions the operation is not a private matter between shareholders. It has to be given publicity and registered at the Commercial Registry, and the structural modification takes effect from the date of that registration, not before.
In mergers and divisions, registering also shuts the door on going back: once registered, the operation can no longer be declared void, although shareholders and third parties keep whatever compensation claims they may have.
Order matters more than speed
The temptation in these operations is always the same: to rush. Close the deal with the other side, sign, and the paperwork will sort itself out. With mergers and divisions that shortcut is expensive, because each piece rests on the previous one and a badly drafted project forces you to redo the whole chain.
It is also worth looking beyond the Commercial Registry. Mergers and divisions touch contracts with clients and suppliers, licences, leases, staff and tax. The assets are transferred as a block, but that does not make every piece move on its own: there are change-of-control clauses, authorisations subject to their own procedure and employment relationships that call for their own analysis. All of it is handled better if it has been anticipated from the start.
Tecem, alongside companies in Málaga and Benalmádena
At Tecem we work with companies in Málaga and Benalmádena on mergers and divisions, from the first question to the final registration. The usual thing is to start with a simple conversation: what you want to achieve, what structure you have today and what moving it involves.
No two operations are alike. The size of the company, the number of shareholders, the type of assets being moved and the position of the creditors change the route completely, so mergers and divisions do not take a textbook recipe: every case needs its own analysis before the first step.
Frequently asked questions about mergers and divisions
Does a merger mean closing down one of the two companies?
Not in the sense of a liquidation. In a merger by absorption, the absorbed company is extinguished but its assets and its shareholders pass to the absorbing one; there is no closing down with a share-out and the shutters pulled down.
Is a merger or a division taxed like a sale?
No. Mergers and divisions have a special restructuring tax regime that avoids being taxed like an ordinary sale, but it is not unconditional: it does not apply where the operation has no valid economic reason behind it and is mainly after the tax saving. It also has to be reported to the tax authorities, and filing late carries a €10,000 penalty for each operation. It is one of the points worth having analysed before deciding anything, not afterwards.
Is an agreement between the parties enough for the operation to take effect?
No. Besides the agreement, the law requires it to be given publicity and registered at the Commercial Registry. The operation takes effect from the date of registration, so until that moment it is not effective.
What happens to employees and contracts in force?
Employees have information rights of their own: the directors draw up a report with a section devoted to them, explaining what the operation means for employment relationships and any change in working conditions, and it is made available to them at least one month before the shareholders’ meeting. That right stands even where the resolution is passed at a universal meeting. As for contracts and licences, transferring the assets as a block does not remove the need to review change-of-control clauses or authorisations that call for their own procedure. It is one of the parts that demands the most preparatory work in mergers and divisions, and it is worth analysing it before signing anything.