Features of companies mergers in Cyprus: procedure and terms

A companies’ merger is an important step in the life of many businesses who want to avoid outright liquidation or create a more powerful and competitive organization. In Cyprus, as in many other countries, there are clear and detailed procedures and terms for carrying out a merger of companies. In this article, we will look at the key aspects of this process and features specific to Cyprus.

Why merge companies in Cyprus?

A merger of companies in Cyprus can have different objectives and motivations. One of the most common reasons is the desire to strengthen market position or create a more efficient management structure. In addition, mergers can be aimed at improving the financial position of companies, optimizing tax obligations and business diversification. Also, the merger procedure helps to avoid direct liquidation or bankruptcy through business reorganization.

An important goal of a merger of companies is to obtain tax advantages, because such a reorganization of business activities can lead to complete exemption from taxes, and the transfer of assets itself is carried out on the basis of tax neutrality. And during reorganization, tax losses can be carried forward to future tax periods.

Types of mergers of companies in Cyprus

Company mergers in Cyprus are governed by the Companies Law (Cap. 113 – Sections 198-201.) and require strict adherence to certain procedures.

The legislator has provided for several forms of merger:

– merger through acquisition;

– merger by creating a new company;

– merger of companies to form a holding company.

Moreover, Cyprus entrepreneurs have access to both the merger of local Cypriot companies and cross-border merger, that is, the merger of a Cypriot company with a European one. The choice of form depends on the specific goals and needs of the companies, and for individual selection we recommend consulting with specialists in this field.

How does a merger of companies take place in Cyprus?

The merger procedure is quite complex and also depends on the form of the merger. But, the main general steps of the process include:

1. Making the decision to merge

To begin the merger process, it is necessary for the shareholders and directors of the companies that are planning to merge to make an appropriate decision. This decision must be supported by a majority vote and must be documented.

2. Development of a merger plan

Once the decision is made, it is necessary to develop a merger plan that includes all the details and terms of the merger.

3. Approval of the merger plan

The plan must be approved by the shareholders of both companies. In most jurisdictions, a simple majority vote of shareholders is sufficient for approval. In Cyprus, approval of a merger requires a majority vote equal to at least ¾ of all shareholder votes.

4. Notification to creditors

Companies must notify their creditors of the intention to merge. Creditors have the right to express their opinions and protect their interests during the merger process.

5. Preparation of merger documents

The next stage includes the preparation of all merger documents: the plan of merger, the resolution of the meeting of directors on the merger, ratification of the resolution by shareholders, the preparation of financial accounts, consent of creditors, and all related articles of incorporation of the two companies involved in the merger. The collected documents are submitted to the local court for approval of the merger.

6. Court approval of the merger

In Cyprus, the merger procedure must be approved by the court. The court may refuse to approve a merger if it finds that the merger is not in the interests of creditors or shareholders of the companies involved in the merger.

7. Completion of the procedure

Once the merger is approved by the court, companies can complete the merger process by executing the relevant documents and amending the company’s articles of incorporation.

It is important that in Cyprus the merger of companies is subject to approval by the Cyprus Securities and Exchange Commission and registration in the Cyprus Trade Register. Thus, the merger is not valid until the registrar of companies processes the documents filed and records the fact of dissolution and creation of a new company.

Following a merger, companies are required to update their accounting and financial statements to reflect the new status. This includes changing the name, address and other details. If the merger is accompanied by a reorganization of the company structure, this also requires additional actions and re-issuance of internal documentation.

Advantages and risks of merging companies in Cyprus

Having examined in detail the procedure and terms for merging Cypriot companies, it is important to emphasize the same advantages of this process, as well as the associated risks.

Advantages of merging companies:

• The combination of two companies can create a larger and more powerful organization, which will increase its competitiveness in the market.
• Cyprus is known for its tax benefits and a merger can help optimize tax liabilities, including reduced income tax and other tax benefits.
• A merger can provide access to new markets, customers and partners, which can help expand the business.
• Combining the resources and competencies of two companies can increase the ability to innovate and develop new products or services.
• A merger can result in lower costs by sharing resources, infrastructure and management functions.
• Business combinations can help reduce risks associated with specific markets or sectors by creating a more diverse business portfolio.
• New opportunities are opening up to attract investors and capital to finance the growth and development of the company.
• Reorganization helps to strengthen market position and increase market share.

At the same time, if you do not plan the merger procedure professionally, without taking into account all the tax and legal aspects of Cyprus, or if you try to go through this reorganization process on your own, you may be subject to the opposite result – risks and problems.

Risks of merging companies:

• Failure to comply with the requirements of Cyprus legislation may lead to refusal to approve the merger or even to its cancellation, which entails financial costs.
• The possibility of legal disputes and claims from creditors, shareholders and other interested parties.
• Loss of value of assets or underestimation of liabilities in the process of assessing the assets and liabilities of companies.
• The risk of deterioration in the financial position of the companies after the merger, which may require additional investments.
• Difficulties in the process of integrating business processes and corporate culture.
• Failure to manage the tax aspects of the merger may result in additional tax liabilities.
• The risk of losing tax benefits or privileges that the companies had before the merger.
• Failure to effectively manage integrated companies following a merger may reduce operating efficiency and profitability.

However, merging companies in Cyprus is a complex but potentially rewarding process. And successful executing a merger requires careful planning, strict compliance with the law and professional experts support.

There is currently an increase in mergers and company registrations in Cyprus in the tourism, finance and technology sectors. The authorities are seeking to create a favorable environment for investment and business development, which encourages merger and acquisition activity. If you decide to reorganize your business, even if it is outside of Cyprus, we recommend that you consider this particular jurisdiction for merging companies and receiving associated benefits.