Extraordinary Transactions - CARAVATI PAGANI - Dottori Commercialisti Associati

Extraordinary operations represent one of the most challenging moments in the life of a company because of the many critical aspects that need to be dealt with quickly and competently. CARAVATI PAGANI provides essential support for an overall assessment of the extraordinary operations to be undertaken. To this end, we take care of the following for our clients:

• management of relations with Private Equity and Venture Capital funds, preparation of presentation dossiers, business plans;
• business leases, MBOs, LBOs, CBOs.

WHY RESORT TO EXTRAORDINARY TRANSACTIONS?

These operations are necessary when the legal form of the company needs to be adapted to changing market conditions or the legislative or socio-economic situation. They are also necessary if the balance of power between shareholders is about to change or if strategies involving new alliances are about to be implemented. The need for technological adaptation of the forms of organisation of production activity may also involve extraordinary operations. The main purpose of these operations is, therefore, to adapt, reorganise or rationalise the structure of the Company or of its branches.

The directors of a company may decide to change the corporate form or to get rid of certain activities that have become secondary for various reasons. Entrepreneurial or corporate governance difficulties, for example, may drive an entrepreneur to choose to concentrate the Company’s resources on priority activities.

TYPES OF EXTRAORDINARY TRANSACTIONS

There are several extraordinary transactions that can affect the generality of businesses or companies. In the majority of cases, these operations are voluntary and, more rarely, they are obligatory. A distinction is made between “direct” operations, such as the sale of a company, and “mediated” operations, such as the sale of shareholdings. The main ones are:

• the transformation;
• the merger. The resources and assets of other companies are united in a single company;
• the demerger of companies or branches of companies. It may be useful to relieve the existing social structure. It may change the balance of power between the shareholders or remain unchanged with respect to the original conditions;
• the contribution. The shareholders remain the owners of the hiving off or contributing company and at the same time the hive off or contribution is made to participate in the beneficiary company;
• disposal;
• liquidation

Extraordinary transactions: transformation

CARAVATI PAGANI is able to assist with competence and efficiency customers who have to face a company transformation. The purpose of this extraordinary operation is to be able to change the organisational structure of the existing company according to the new requirements, without extinguishing it and creating a new one, while obtaining tax advantages. With the transformation one obtains a change between types of “profit-making” companies. With homogeneous transformation one changes for example from a partnership to a corporation or vice versa, while with heterogeneous transformation one changes from a corporation to other entities or vice versa.

Types of company transformation

There are five different types of company transformation:

• Simple homogeneous transformation, when you change from a partnership to another type of partnership (e.g. from S.n.c. to S.a.s). Or when one changes from a corporation to another type of corporation (e.g. from S.r.l. to S.p.A.);
• progressive homogeneous transformation, when one goes from a partnership to a corporation (e.g. from S.n.c. to S.r.l.);
• regressive homogeneous transformation, when one goes from a capital company to a partnership (e.g. from S.r.l. to S.n.c.);
• progressive heterogeneous transformation, when one goes from a non-commercial company to a commercial or profit-making company (e.g. from association to S.r.l.);
• regressive heterogeneous transformation, when one goes from a commercial or profit-making company to a non-commercial one (e.g. from S.r.l. to association).

Extraordinary operations: mergers

CARAVATI PAGANI frequently handles mergers for companies. By means of a company merger, the assets of two or more companies are united and the shareholders merge into a single organisation. The Companies taking part in the company merger assume in this way the same legal entity and continue their activities within a single reinforced production structure.

Types of merger

There are two types of merger

• merger proper or merger by incorporation of a new company. In this case, all the companies involved in the merger are dissolved and their assets are transferred to a company set up for that purpose. The individual entities are legally dissolved and together form a new company;
• Merger by acquisition or incorporation is the most common, due to its lower tax cost and also because it is less complicated to manage. With it, one or more companies that cease to exist individually are incorporated by an existing company. The incorporating company then continues its activity with size and share capital

Extraordinary transactions: the demerger

Our experts work side by side with all those clients who have to carry out a company split. Through the demerger, the capital of a company is attributed to one or more companies, even newly established ones. The demerger can be:

• proportional, when all shareholders of the demerged company are given shares in all the beneficiary companies;
• non-proportional, when only some of the shareholders of the demerged company are assigned shares in one or more beneficiary companies.

Types of divisions

Corporate divisions may be:

• total, if the entire assets of the company are transferred to two or more companies;
• partial, if only part of the company’s assets are transferred to one or more companies.

In a full demerger, the shareholders of the demerged company are allocated new shares in the beneficiary companies in place of the shares they hold. This is done by means of an exchange ratio which values the capital of the companies involved in the transaction. The company being divided as a result of the full division ceases to exist.

In the partial division, the shareholders of the demerged company are allocated shares in the recipient companies in exchange for the shares they originally held. This is done on the basis of an exchange ratio which values the capital of the companies participating in the split. Following the partial division, the demerged company continues to operate.

Extraordinary transactions: the contribution

Extraordinary transactions known as contributions are not regulated by our law, except for the contribution of individual assets. Contribution is an operation by which one brings credits, money or other assets in kind to a company, whether newly established or pre-existing. A contribution exchanges the contributed company for a shareholding in the receiving company. If a company or a branch of a company that has independent earning capacity is transferred to an entity that is legally different from the transferring company, this is referred to as a contribution. The company in this case receives in exchange shares or quotas of the company to whom the transfer is made. Usually the transferee company remains active as a holding company, without ceasing to exist as in a demerger. If the transferee company is to be formed, one part of the capital will be represented by the transferred company and the other by contributions of money or other assets of the other shareholders.

Extraordinary transactions: transfer

The transfer of a company or a branch of a company consists of the transfer of the right to operate a company to another economic and/or legal entity. Usually this operation is performed after a sale/purchase, an inheritance or a donation and can also result from rent or usufruct. The transfer sometimes consists of the transfer of company or shareholding shares enabling the company to be operated. Depending on the consideration required (contribution or money), the assignment is issued by the outgoing operator:

• by contribution, if the agreement provides for the contribution of quotas or shares,
• by sale, if a price has been established.

The most delicate and important step in the transfer of a company, which we handle with the highest attention and competence for our clients, is the determination of the consideration.

Extraordinary transactions: liquidation

Liquidation is an operation by which assets are terminated, for example by the sale of an asset. The liquidation of a company consists of the operations necessary to:

• convert the assets of its capital into cash,
• extinguish the company’s debts
• distribute any residue among the shareholders.

The liquidation of assets, e.g. in the case of a bankruptcy, changes values such as real estate, bills of exchange, cheques and goods into cash. Termination operations result in the definitive cessation of the company’s activities, through the sale of assets, the collection of receivables and the settlement of debts. At their conclusion the company will be extinct.

Administrative compulsory liquidation

Administrative compulsory liquidation is a bankruptcy procedure applied to certain types of companies predetermined by law:

• companies in which the Institute has a stake for the purpose of industrial reconstruction;
• insurance and banking companies
• companies financed by the mechanical industry fund;
• cooperative societies.

If a company subject to compulsory administrative liquidation excluding bankruptcy proves to be insolvent, the court of the place where the company has its head office declares this state by judgment. This is done at the request of one or more creditors or of the authority supervising the company or of the company itself.

EXTRAORDINARY TRANSACTIONS FOR FOREIGN CLIENTS

CARAVATI PAGANI works with leading firms in Europe and America to manage extraordinary international transactions. We are fluent in English and offer a consultancy service to foreign clients to perform extraordinary corporate and commercial transactions in Italy. Thanks to the extensive international expertise and experience of our staff, we are able to assist foreign clients with financial transactions in our country. We are able to provide a highly qualified assistance service in any foreign jurisdiction.