11
Nov

Mergers and excisions are business restructuring processes. Mergers are total, but excisions can be partial or total. In this constant emergence of opportunities and growth for companies, businesses and corporations in the Dominican Republic, merging and acquiring business entities is a sought-after process in the corporate and commercial market in the Dominican Republic.

Therefore, this piece will refer to how to carry out Mergers, Acquisitions and Excisions of business entities in the Dominican Republic We will elaborate below:

• Step 1: Project Preparation.
• Step 2: Submitting in the Mercantile Registry corresponding to the Project.
• Step 3: Publication of the Project in a national newspaper.
• Step 4: Drafting of CA report.
• Step 5: Drafting of CC report.
• Step 6: If needed, elaboration of Draft Statutes.
• Step 7: Celebration of General Assemblies Minutes for the companies involved.
• Step 8: Submitting in the corresponding Commercial Registry.
• Step 9: Submitting the request in question for the Merger, Acquisition or Excision in the Tax Administration office (DGII).

Tax payment from corporations and companies in the merger, acquisition or excision process

One of the benefits of mergers, acquisitions and excisions of companies in the Dominican Republic is that it falls within the exemption scope, established by article 323 of the Labor Code, which states:

“When corporations and companies of any nature are restructured, the results will not be subject to the tax pertaining to this law. The tax rights and obligations corresponding to the subjects that are being restructured, will be transferred to the continuing entities. In any case, the restructure must be performed in accordance with the guidelines established by the Regulation, and the transfer of the fiscal rights and obligations will be accredited subject to the prior approval of the Administration ”.

That said, the merger or excision process itself, will not involve tax payment, and this is one of the things that makes it a favorable process.

Documents required for mergers or excisions in the Dominican Republic:

1. Drafting of merger or excision project.

2. Minutes of extraordinary general assembly for each of the companies for which the merger or excision project was approved.

3. Minutes of the extraordinary general meeting of each of the companies in which an individual is authorized to negotiate.

4. Preparation of the financial statements of each of the companies involved in the merger or excision process, up to date from the effective date of the restructure.

5. Drafting of a report by the commissioner(s) designated by common agreement between both companies stating their view on the practices used in the process.

6. Drafting of a report from the board of directors of each of the participating companies, stating their opinion in relation to the merger or excision process (applicable to Corporations, Simplified Public Limited Companies and Limited Liability companies when their board is different than their partners).

Other requirements or documents to prepare, as applicable.

• Resolution authorizing the restructure of regulated companies (e.g., Insurance, Stock Exchange and financial intermediation institutions).

• Minutes of bondholders assembly approving the merger or excision project. This applies in cases where the absorbed companies have issued obligations.

• Exchange Factor Report. This applies when there is an exchange factor.

During a process of Merging or acquiring a business entity in the Dominican Republic, two very important institutions are involved:

1. The corresponding Chamber of Commerce in the Dominican Republic.

Each and every one of the documents mentioned above must be registered with this institution and as a result:

• Certificate of Commercial Registry of the absorbing and absorbed company with the modifications corresponding to the merger or excision (shareholder changes and subscribed and paid capital, among others).

• Commercial Registry of the absorbed company indicating the merger or cancellation of the Commercial Registry.

2. The Dirección General de Impuestos Internos office (DGII).

Everything listed above, must be submitted to the Tax Administration (DGII), which is in some way the institution that will conclude the process and is where the most arduous process is carried out, along with:

• Affidavit Form for the Registration and Updating of Company Data (RC-02).

• Publication in a newspaper of the merger or excision extract project.

• Notarized letter of guarantee on the tax obligations responsibility of the absorbed companies (applies in the case of mergers).

Important to note:

• Companies involved in the merger or excision process need to current with their tax obligations (e.g., declarations, tax payments).
• To request the merger, it is necessary that the absorbed companies have submitted the final Affidavit of Income Tax (IR-2).

We understand the importance of conceptualizing the terms, therefore, the question is:

What is a merger?

A merger is a technique of universal transfer of assets from one or several companies to another existing or newly created company.

There are two major implications when it comes to mergers of business institutions in the Dominican Republic, which are:

1.The dissolution without liquidation of the companies that disappear and the universal transfer of their assets to the absorbing companies, in their current state at the time of the finalization of the process.

2. Simultaneously, for the members of the companies that will be absorbed, the acquisition of the status as partners of the beneficiary companies under the conditions determined by the merger contract.

What is an excision?

An excision is a technique of universal transfer of asset blocks from one company to another existing or newly created company.

The difference between a merger and an excision is that mergers are always absolute, while excisions are the segregation of one or more parts of the assets of a company without ceasing to exist, transferring the segregated blocks into one or more newly created or existing companies. As a result, companies can either continue operations after excisions or they might go through:

1. Simple total excision.

2. Total excision by absorption.

In these cases, the company that transfers its assets ceases operations.

In our Morillo Suriel Abogados – Attorneys at Law firm, we have a division specialized in Corporate Law, through which we can assist you with any questions or concerns you might have in the matter.