Apr 7, 2025
Reorganization of Companies – Change of Company Form, Merger, and Demerger
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:
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
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
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
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:
Preparation of a merger plan (Companies Act/Public Limited Companies Act § 13-6)
Approval of the merger plan in the general meetings with a two-thirds majority (Companies Act/Public Limited Companies Act § 13-3)
Creditor notification period with the opportunity for objections (Companies Act/Public Limited Companies Act §§ 13-14 and 13-15)
Submission of the implementation notice to the Register of Business Enterprises
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:
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
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
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:
Preparation of a demerger plan
Approval of the demerger plan in the general meeting with a two-thirds majority (Companies Act/Public Limited Companies Act § 14-6)
In the case of skewed demerger, approval from all votes cast and the entire represented share capital is required
Creditor notification period
Submission of the implementation notice to the Register of Business Enterprises
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.