Corporate Law: Loans and Transformations

Loans and Financial Activity

• Loans within a group are subordinate to other creditors to avoid excessive indebtedness.
• Loan repayment prioritizes other creditors.

Transformation, Mergers, and Divisions

• Transformation: A significant change in a company's or partnership's legal structure. It maintains continuity of legal relations (the transformed entity keeps the transformed entity’s rights and responsibilities.)
• Two types of Transformation:
  • Homogeneous: For-profit companies or partnerships changing into another for-profit company or partnership.
  • Heterogeneous: For-profit entities changing into entities with a different purpose.
• Homogeneous Transformation Details:
  • Partnerships to limited liability companies and vice versa are regulated.
  • Partnership assets require valuation using the same criteria as in-kind contributions
  • The share capital is capped based on the valuation.
• Member Liability for Corporate Obligations:
  • Unlimited Liability: Consent required from members who will assume unlimited liability.
  • Unlimited Liability lost: Members are not released from liability before the transformation is registered with the Business Register. Creditors' consent is presumed if the resolution is communicated, and creditors have not denied consent within 60 days after receipt.

Merger

• Definition: Unification of two or more companies or partnerships into one.
• Types of Mergers:
  • Merger in strict sense: Two or more entities form a new entity.
  • Merger through absorption: An existing entity absorbs one or more entities.
  • Homogeneous Merger: Combining entities of the same type.
  • Heterogeneous Merger: Combining entities of differing types (e.g., different company types or different company types vs. non-profit entities). Similar to heterogeneous transformations.
• Post-merger effects: The resulting entity inherits the rights and obligations of the merged entities, continuing previous relationships.

Merger Procedure

• Steps in Merger:
  • Draft terms of merger.
  • Merger decision.
  • Deed of merger (Formal document).

Division

• Types of Division:
  • Total division: All company assets are transferred to new entities; the original entity is dissolved.
  • Partial division: Only some company assets are transferred; the original entity continues operations.
  • Division in strict sense: Beneficiaries are new entities formed from the division.
  • Division through absorption: Beneficiaries are existing entities with additional assets from the division.

Division Procedure

• Steps in Division:
  • Draft terms of division.
  • Division decision.
  • Deed of division.
• Merger rules apply (generally) to divisions, unless specified otherwise.

Explore key concepts in corporate law related to loans, financial activities, and transformations. This quiz covers subordinated loans, repayment priorities, and the nuances of homogeneous and heterogeneous transformations in company structures. Test your knowledge of these essential business concepts.