Trading companies long since have passed beyond the borders of countries in which they have their registered office, central administration and principal place of business. Internationalization is gaining ground both in the sphere of activities and in the structure of the companies pursuing the increase of their profits and has put on the agenda the question of their correct and advisable localization, which includes their production enterprise and units. The necessity for companies to freely cross countries in search of a more favorable legal and economic atmosphere for the optimal combination of legal climate, tax regime and market conditions. Carrying out the decisions made on the basis of economic reasons requires the assistance of adequate legal regulation, which will provide the possibility for re-structuring company business’ beyond national borders(1).
The transnational merging of companies, as well as transferring registered offices is one of the forms of the cross-border movement of legal corporate persons, i.e. the “mobility of companies”. The interaction between the concerned legal systems supposes that the institute of the transformation of the trade companies to be settled according to both legislations. While the adaptation of the inter-company transformations within the EU was made in an earlier stage with the adoption of the Third Council Directive (Directive № 78/855 concerning mergers of public limited liability companies) and the Sixth Council Directive (Directive № 82/891 concerning the division of public limited liability companies), working out colliding issues that emerge with the transnational transformation within the EU took a very long time till in 2005 the Tenth Directive № 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies (2) was adopted and the regulations of which were duly transposed in the new Section V (3) of Chapter XVI of the Bulgarian Commerce Act. The financial aspects of the transformation were harmonized in the 90s with the adoption of Council Directive 90/434/EEC on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States (4).
The transformations are under the Tenth Directive on mergers (Art.2, p.2/a/). They are applicable to all capital companies (Art.2, p.1/a/ in connection with Article 1 of Directive 68/151/EEC of the Council of 9 March 1968 on the co-ordination of guarantees, which the Member-States require from the companies within the definition of Art. 58 of the Contract for the protection of the interests of members and others, the aim being securing equivalence of the guarantees on the territory of the Community), whose country’s national law admits transformations are set up in the jurisdiction of a member-state and have its registered office, central administration or principal place of business located within the Community.
The Tenth Directive (consideration 3) adopts the principle of lex societatis (5) concerning the applicable law with regard to every company transformation, concerning the very possibility itself for transformation and the procedure that is to be followed. Referral to the national law of the companies is not expected to hinder the transformation as far as the legal regulation on the internal transformations has already been subject to adaptation by the Third Directive No 78/855 on mergers and amalgamations of joint-stock companies.
The procedure for the transformation in principle is conducted in two stages: the publication of the transformation in the competent administrative/ Court Register and the declaration of the Executive Body of the acquiring company of the registration of the transformation at the Bulgarian Commercial Register (Consideration 7 of the Tenth Directive).
Regarding the participation of the workers and employees in the management of the acquiring or new company, the Tenth Directive foresees the application of the rules in force in the Member State where it has its registered office. At the same time, the principle of the acquired rights contained in the Regulation (EC) № 2157/2001 of the Council on the statute of the European company concerning the employee participation.
The fulfillment of the procedure for cross-border transformations requires to have in mind the provisions of Regulation № 139/2004 on the control of concentrations between undertakings (the EC Merger Regulation) which is a specific legal instrument for the effective control of the conducted operations and their influence on the structure of the respective market on national and Community level.
The participation of companies of different nationality in the transformation proves to be one of the main mediums for re-structuring company capital. By way of the transformation the parent company has the opportunity to terminate its subsidiary (daughter company) in case its profits substantially decrease. Through the transformation of companies the legal statute is subject to a new legal order which does not require the liquidation of the company property transferred as a whole to the new or the acquiring company. In this way the company is given chance to concentrate its business and capital in more effective participation in the market.
(1)For more detailed information: J.D. Jeliazkova V., Trade companies in International Private Law
(2)OJ L 310, 25.11.2005
(3)State Gazette, No 104 of 2007
(4)OJ L 225, 20.08.1990
(5)OJ L 225, 20.08.1990