Transformation of the company by changing its legal form
 

When the shareholders establish the company, they choose its legal form , which they consider suitable for the future activity that corresponds to their interests and capabilities. It is possible, however, that due to certain circumstances (e.g., expansion or reduction of the activity, attracting investments, etc.) the selected form becomes unsuitable. In this case shareholders may change it, according to special rules, governed by the Commerce Act (CA).

Upon change of the legal form, the existing (transforming) company is terminated, without carrying out liquidation procedure , and a new company is established that assumes all the rights and obligations of the terminated company. The transformation of the company by changing its legal form is different from the Transformation of the company through merger, consolidation, division, spin-off.

The transformation procedure is particularly complex and it may have additional specificities and deviations from the rules, detailed below. Therefore, before commencing a change in the legal form, it is highly recommended that you undertake a thorough analysis of the applicable legal framework, specified in the provisions of art. 264 – 265c of the Commerce Act.

It is necessary that before commencing the procedure for change of the legal form, a notice is sent to the National Revenue Agency (NRA). The application template may be found at the following address). The Territorial Directorate of the National Revenue Agency issues to the trader/ candidate a certificate confirming the receipt of the notification within 60 days of the submission date. The notification is a mandatory part of the documents, attached to the application, as per item 5.

 

What are the stages of the procedure for change of the legal form?

Preparation of a transformation plan

Preparation of a transformation plan

The management body1, and the shareholders having management rights2, prepare a transformation plan in writing with notarized signatures. Art. 264а of the CA governs the compulsory contents of this plan. A draft for new articles of association3 or articles of incorporation4 for the newly established company must also be prepared and this draft is attached to the transformation plan.

Announcement of the plan and disclosure of information

Announcement of the plan and disclosure of information

The drafted plan must be announced in the Commercial Register on the file of the transforming company. The announcement takes place through an application by the management body or the shareholders with management rights, respectively. The application may be submitted online at the following address by means of a qualified electronic signature, and in this way the payable fees will be lower. If the transforming company is joint-stock company (JSC), limited liability company (LTD) or limited partnership with a share capital (LPSC), the transformation plan must be announced at least 30 days prior to the date of the meeting of the General Assembly, where the transformation decision is made. Free access of the shareholders in the transforming company to the following information must be provided: transformation plan, the new articles of incorporation/memorandum of association, the details on the appointed auditor (see item 3) and the depository5, the balance sheet as of the last date of the month prior to the preparation of the transformation plan (art. 264b of the CA).

Inspection of the transformation plan

Inspection of the transformation plan

The inspection of the transformation plan may be initiated by various persons, depending on the legal form of the newly established company:

  • If the newly established company is a LTD, JSC or LPSC , the management body/the shareholders with management rights of the existing company should appoint an auditor, who will audit the transformation plan and draft an audit report. The report is distributed to the shareholders;
  • If the newly established company is a general partnership (GP) or limited partnership (LP), the audit of the plan may be performed at the request of a shareholders' shares or a decision of the management or supervisory body of the transforming company.

When the audit is performed, based on a decision of the management body, the management body appoints an auditor6. In all other cases, the auditor is appointed by the Registry Agency

Decision for transformation

Decision for transformation

In case of transformation of a GP or LP partnership the consent of all the shareholders, made in writing with notarized signatures, must be provided. In case of transformation of a limited liability LTD, JSC company and a limited partnership with a share capital LPSC, the general assembly of the company must make a decision for the transformation of the company. This decision approves or amends the transformation plan, articles of association/articles of incorporation of the newly established company are adopted and the mandatory necessary bodies are appointed (e.g., in case of transformation of a limited LTD, the mandatory bodies, which must be appointed are the general assembly of the shareholders and the general manager).

The majority, required for approval of the decision is different, depending on the type of the transforming company:

  • The decision for the transformation of a LTD into another type of company is approved by the general assembly of the shareholders by the majority of the owners of at least 3/4 of company's capital;
  • The decision for the transformation of a joint-stock company into another type of company is approved by the general assembly of the shareholders, by a majority of 3/4 of the voting shares present;
  • For the transformation of limited partnership with a share capital into another type of company, a decision of the shareholders with unlimited liability, made unanimously in writing with notarized signatures is required, as well as the decision of the general assembly of the shareholders, made by a majority of 3/4 of the voting shares present.
Registration of the change with the Commercial Register

Registration of the change with the Commercial Register

The change of the legal form must be registered with the Commercial Register, in order to become effective. Upon the registration of the legal form, the company is terminated and replaced by the newly established company. Thus, the rights and obligations of the transforming company are fully transferred to the newly-established company.

The registration is based on an application, submitted by the management body/shareholder having management rights in the newly-established company. The application template is available at the following address in section В in the drop-down menu (template B2-1). The application may be submitted online, as in this case the fees payable are lower. The application must be accompanied by the respective documents, listed in the appendix to the template.

 

Important to know
Important to know

No new shareholders can be accepted in the company throughout the procedure for the change of the legal form.

When a change in the legal form of a sole-owner company is carried out, no transformation plan is prepared and there is no need to provide information (see item 1 and item 2 above).

If the newly established company is LTD, JSC company and a LPSC, the amount of its capital cannot be more than the net value of the property of the transforming company7. In this case the auditor (item 3) verifies the fulfillment of that requirement.

 

Important to know
Important to know

A change in the legal form of the company occurs also, if a sole-owner limited liability/joint-stock company (SOLTD and SOJSC) adopts new shareholders/shareholders. In this case SOLTD and SOJSC is transformed into a regular LTD/JSC. It is also possible that LTD/JSC is transformed into SOLTD/SOJSC, when all company shares are acquired by the shareholders. In these cases the aforesaid rules do not apply. The rules for the transfer of company shares apply instead.

 

For more information
For more information

For more information on the Transformation of the enterprise by changing its legal form and the related regulatory framework please refer to the websites of the:

 

1 In the case of joint-stock company, limited partnership with a share capital and limited liability company.

2 In case of a general or limited partnership.

3 If the newly established company is a general or limited partnership, or limited liability company.

4 If the newly established company is joint-stock company or limited partnership with a share capital.

5 The depository is a natural person or legal entity, authorized by the management body of the transforming company, to store the temporary certificates or shares, which should be handed-over to the shareholders or the shareholders of the transforming companies (art. 262x of the CA).

6 The auditor must be a registered auditor. The auditor cannot be a person, who in the past two years has been the auditor of the company, which appoints it or who has prepared the evaluation of the non-financial contribution in the share capital of the company. The appointed auditor cannot be appointed as such of any of the owners in the transforming companies two years after the transformation date.

Auditors' Register

7 Net value of the property is the difference between the financially assessable rights and obligations of the company in conformity with its accounting balance sheet (art. 247а of the Commerce Act).

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