Apr 7, 2025

Reorganization of Companies – Change of Company Form, Merger, and Demerger

Reorganization of Companies - Legal Frameworks and Procedures
Reorganization of Companies - Legal Frameworks and Procedures
Reorganization of Companies - Legal Frameworks and Procedures

Companies often undergo structural changes to adapt to new market conditions, optimize operations, or address internal challenges. Such reorganization can take the form of a change in corporate form, merger, or demerger. This article provides an overview of the legal frameworks and procedures for various types of corporate reorganization under Norwegian law.

Change of Corporate Form

Changing the corporate form involves transforming a company from one type of company to another, for example, from a partnership to a limited liability company or from a limited liability company to a public limited liability company.

From Partnership to Limited Liability Company

Reorganizing from a partnership to a limited liability company is relatively common. This occurs particularly when:

  • The company has passed the start-up phase and is now making a profit

  • There is no longer a deficit to deduct from individual participants' personal taxation

  • Participants desire limited liability

This reorganization requires a formal process involving:

  • Dissolution and winding up of the partnership

  • Establishment of the new limited liability company

Between Limited and Public Limited Companies

The transformation between a limited liability company (AS) and a public limited liability company (ASA) is subject to simplified rules based on a principle of continuity. This means that:

  • Only a resolution at the general meeting with a majority required for amendments to the bylaws (two-thirds majority) is needed

  • The company does not need to be dissolved and wound up

  • A shareholder typically cannot demand redemption of their shares as a consequence of the transformation

  • Creditors typically cannot demand extraordinary settlement

Motivation for transforming from AS to ASA may be:

  • Desire to increase share liquidity

  • Possibility for stock exchange listing

  • Broader access to capital

Motivation for transforming from ASA to AS may be:

  • Desire for a more concentrated ownership

  • Greater owner influence

  • Delisting from the stock exchange in preparation for further restructuring

When transforming from AS to ASA, the requirement for a minimum share capital of 1 million NOK must be met.

Merger

A merger involves the combination of two or more companies into one entity. The purpose is often to:

  • Create larger and more competitive businesses

  • Achieve cost savings

  • Increase efficiency in organization, production, or marketing

  • Realize synergy effects

Principle of Continuity

Mergers between limited companies are regulated by the Companies Act/Public Limited Companies Act, Chapter 13. These rules are based on a principle of continuity, meaning that:

  • The businesses are not dissolved and wound up, but integrated in a simplified manner

  • Co-contractors usually cannot withdraw from existing contractual relationships

  • Creditors cannot demand extraordinary settlement of claims

  • Individual shareholders cannot demand redemption of their shares

This contrasts with ordinary contract and bond law rules, which are based on discontinuity.

Forms of Merger

The corporate law defines four forms of mergers:

  1. Merger without Compensation:

    • Amalgamation into the parent company of a wholly-owned subsidiary

    • Merger of two wholly-owned subsidiaries (only for AS)

    • Regulated under the Companies Act §§ 13-23 and 13-24, Public Limited Companies Act § 13-24

  2. Merger by Acquisition (Acquisition Merger):

    • Two independent companies are combined

    • The acquiring company is an existing business

    • Compensation shares are issued by the acquiring company

    • Regulated under the Companies Act/Public Limited Companies Act § 13-2 first paragraph

  3. Merger by Formation of a New Company:

    • Two existing companies merge into a new company

    • Compensation shares are issued by the newly formed company

    • Regulated under the Companies Act/Public Limited Companies Act § 13-2 first paragraph

  4. Group Merger (Triangular Merger):

    • Compensation shares are issued by a parent or sister company to the acquiring company

    • The parent company/sister company receives a claim on the subsidiary equivalent to the equity contribution

    • Requires that the parent company alone or together with the subsidiary holds more than 90 percent of the shares and votes

    • Regulated under the Companies Act/Public Limited Companies Act § 13-2 second paragraph

The Merger Process

The merger is carried out through the following main steps:

  1. Preparation of a merger plan (Companies Act/Public Limited Companies Act § 13-6)

  2. Approval of the merger plan in the general meetings with a two-thirds majority (Companies Act/Public Limited Companies Act § 13-3)

  3. Creditor notification period with the opportunity for objections (Companies Act/Public Limited Companies Act §§ 13-14 and 13-15)

  4. Submission of the implementation notice to the Register of Business Enterprises

  5. Entry into force of the merger upon registration (Companies Act/Public Limited Companies Act § 13-16)

Cross-Border Mergers

The Companies Act and Public Limited Companies Act have special rules on cross-border mergers, implemented to fulfill EU Council Directive 2005/56/EC.

Tax Aspects

The merger can be carried out tax-free if it is conducted according to the rules of the Companies Act and Accounting Act, cf. Tax Act § 11-2.

Demerger

A demerger involves splitting a company into two or more companies. The purpose may be to:

  • Establish multiple companies to be distributed among different shareholders/shareholder groups

  • Resolve disagreements between shareholders

  • Implement a generational change

  • Distribute the company's business into more specialized units

  • Reduce risk by spreading the business across multiple companies

  • Prepare for the sale of parts of the business

Forms of Demerger

The law defines three types of demergers:

  1. Demerger with Continuation of the Transferor Company:

    • Parts of the company's assets, rights, and obligations are transferred to one or more transferee companies

    • The transferor company continues to exist

    • Regulated under the Companies Act/Public Limited Companies Act § 14-2 first paragraph

  2. Demerger with Dissolution of the Transferor Company:

    • All the company's assets, rights, and obligations are distributed to two or more transferee companies

    • The transferor company is dissolved

    • Regulated under the Companies Act/Public Limited Companies Act § 14-2 second paragraph

  3. Group Demerger:

    • Compensation shares are issued by another company in the same group as the transferee company

    • Regulated under the Companies Act/Public Limited Companies Act § 14-2 third paragraph

Principle of Continuity

The demerger rules, like the merger rules, are based on a principle of continuity. This means that:

  • The transfer can occur without creditor consent

  • Contractual partners cannot oppose the transfer

  • Shareholders receive compensation shares in the transferee company, possibly with a cash addition that must not exceed 20 percent of the total consideration

Skewed Demerger

Compensation shares must as a rule be provided to shareholders in the transferor company, but they need not be distributed in the same proportion as the ownership in the transferor company. This is called a "skewed demerger" and requires unanimity among the shareholders.

The Demerger Process

Demerger requires the following main steps:

  1. Preparation of a demerger plan

  2. Approval of the demerger plan in the general meeting with a two-thirds majority (Companies Act/Public Limited Companies Act § 14-6)

  3. In the case of skewed demerger, approval from all votes cast and the entire represented share capital is required

  4. Creditor notification period

  5. Submission of the implementation notice to the Register of Business Enterprises

  6. Entry into force of the demerger upon registration

Cross-Border Demergers

The Companies Act and Public Limited Companies Act have special rules on cross-border demergers, implemented to fulfill EU Council Directive 2005/56/EC.

Tax Aspects

Only demergers conducted according to the rules in the Companies Act/Public Limited Companies Act Chapter 14 can be carried out tax-free under the rules in the Tax Act Chapter 11, cf. Tax Act § 11-4.

Conclusion

Reorganization of companies can be carried out in various ways depending on the purpose and circumstances. The regulations for changing corporate form, merger, and demerger are designed to balance the need for efficient transactions with the protection of creditors and minority shareholders. For larger reorganizations, the principle of continuity is central as it facilitates structural changes without adversely affecting the company's relations with third parties.

Tax implications are often a decisive factor when choosing the form of reorganization, and it is crucial that the process meets the formal requirements to qualify for any tax exemptions. For complex reorganizations, thorough legal and tax advice is therefore recommended.

Sterk Law Firm

Your Partner in Norwegian Corporate Law

Your Partner in Norwegian Corporate Law

Your Partner in Norwegian Corporate Law

The legal structure forms the framework for your business. The choice of structure, governance documents, and agreements will have significant impacts throughout the company's lifespan. Errors and deficiencies can lead to substantial consequences, both legally and financially. Therefore, it is crucial to have a competent business attorney by your side. At Sterk Law Firm, we have extensive experience advising companies and their owners. We are aware of the common pitfalls and know how to build a robust structure for the future. Whether you are establishing a new company, bringing in investors, executing a merger, or winding down operations, we can assist with tailored solutions. We see it as our duty to clarify what you can achieve and how various solutions will impact the company. Our advice is practical and business-oriented, with an eye for both legal and commercial aspects of the matter. We will be a sparring partner who challenges you when necessary, to ensure all possibilities are considered before a decision is made. As a permanent attorney, we can also assume the role of company secretary and become an integral part of the company's management. We assist with calling, minute-taking, and conducting general meetings and board meetings, as well as updating the share register and notifications to the Register of Business Enterprises. Most of our clients choose an ongoing advisory agreement so that we are available when the need arises. Others seek assistance for standalone transactions or projects. We tailor our offer to your needs and provide you with a predictable price based on a fixed hourly rate or unit price. Contact us today for a non-binding conversation!

The legal structure forms the framework for your business. The choice of structure, governance documents, and agreements will have significant impacts throughout the company's lifespan. Errors and deficiencies can lead to substantial consequences, both legally and financially. Therefore, it is crucial to have a competent business attorney by your side. At Sterk Law Firm, we have extensive experience advising companies and their owners. We are aware of the common pitfalls and know how to build a robust structure for the future. Whether you are establishing a new company, bringing in investors, executing a merger, or winding down operations, we can assist with tailored solutions. We see it as our duty to clarify what you can achieve and how various solutions will impact the company. Our advice is practical and business-oriented, with an eye for both legal and commercial aspects of the matter. We will be a sparring partner who challenges you when necessary, to ensure all possibilities are considered before a decision is made. As a permanent attorney, we can also assume the role of company secretary and become an integral part of the company's management. We assist with calling, minute-taking, and conducting general meetings and board meetings, as well as updating the share register and notifications to the Register of Business Enterprises. Most of our clients choose an ongoing advisory agreement so that we are available when the need arises. Others seek assistance for standalone transactions or projects. We tailor our offer to your needs and provide you with a predictable price based on a fixed hourly rate or unit price. Contact us today for a non-binding conversation!

The legal structure forms the framework for your business. The choice of structure, governance documents, and agreements will have significant impacts throughout the company's lifespan. Errors and deficiencies can lead to substantial consequences, both legally and financially. Therefore, it is crucial to have a competent business attorney by your side. At Sterk Law Firm, we have extensive experience advising companies and their owners. We are aware of the common pitfalls and know how to build a robust structure for the future. Whether you are establishing a new company, bringing in investors, executing a merger, or winding down operations, we can assist with tailored solutions. We see it as our duty to clarify what you can achieve and how various solutions will impact the company. Our advice is practical and business-oriented, with an eye for both legal and commercial aspects of the matter. We will be a sparring partner who challenges you when necessary, to ensure all possibilities are considered before a decision is made. As a permanent attorney, we can also assume the role of company secretary and become an integral part of the company's management. We assist with calling, minute-taking, and conducting general meetings and board meetings, as well as updating the share register and notifications to the Register of Business Enterprises. Most of our clients choose an ongoing advisory agreement so that we are available when the need arises. Others seek assistance for standalone transactions or projects. We tailor our offer to your needs and provide you with a predictable price based on a fixed hourly rate or unit price. Contact us today for a non-binding conversation!

Advokatfirmaet Sterk
Advokatfirmaet Sterk
Advokatfirmaet Sterk

We build strong corporate structures and safeguard your ownership interests

We build strong corporate structures and safeguard your ownership interests

We build strong corporate structures and safeguard your ownership interests

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