Partnering international businesses in Greece
Many entrepreneurial opportunities were created as a result of the boundless European internal market. It is not only “global players”, i.e. the major corporations, which are faced with the issue of expansion abroad, but also medium-sized businesses and companies which would like to have a share of the benefits of an enlarged internal market.
When planning to invest in Greece, German companies are faced with the choice of whether to establish a new company or to take over and invest in an existing company. In addition to the possibility of forming a new company in Greece, there are advantages to taking over or investing in an existing Greek company. Such corporate transactions, including mergers, taking over companies or investing in them, are referred to as “Mergers & Acquisitions”, or “M & A” for short.
Since the second half of 2004, the global market for M & A transactions has become much livelier. This trend has not stopped at Greece either, as various recent takeovers has shown. Buying up or investing in other companies can help to improve the market position of and provide tax breaks for medium-sized companies too.
The German entrepreneur who is considering taking over a Greek company should consider that the actual benefits derived from the total of the individual companies following a purchase can be greater than the benefit derived from the individual company viewed separately. Keep these synergistic effects at the forefront of your considerations.
It is possible that until sales are established and generated, organic growth by setting up and developing a new company abroad under one’s own steam may be very costly in terms of time. Buying out an existing business that is well-established in the market can, on the other hand, lead to an immediate market presence and sales generation, and even to direct inorganic expansion of the existing corporate structure. Other decisive reasons in favor of taking over a Greek company include a specific company’s brand, its location, immediately available production capacity, etc.
An investor’s stake can bring new liquidity and thus help to improve an existing company’s market position or, in the case of a company sale, also settle the issue of succession.
Regardless of the alternative that the company chooses, it will have to become knowledgeable of the regulatory framework and also the social and economic conventions in Greece. Another important consideration will be the international interaction between the German (parent) company and the Greek (subsidiary) company.
Steady integration of the EU internal market is impeded, however, by a flood of national laws that have only been partly harmonized with the distinctive features of national law in the specific countries. Previously it might only have been major conglomerates and corporations that had to cope with the regional peculiarities in question, but now, as a result of creation of the EU internal market, small and medium-sized companies are increasingly faced with the differing legislation and national regulations.
The following will highlight some alternatives to setting up a new company.
Buying a company is a complex affair, with a wealth of detailed issues requiring clarification. A distinction must be made between the preparation, transaction and integration phases. The first requirement is therefore a project plan for the individual stages and planned sequence.
Due diligence plays a significant part in a company takeover. Information relating to the business must be collected in order to value the business and to reduce the obvious and hidden risks associated with the transaction. This also ensures that the strengths and weaknesses inherent in the planned takeover and the opportunities and risks can be assessed. All information, facts and particular features are to be noted in the written due diligence (not the least for documentation and evidentiary purposes!). The due diligence should contain any information relevant to the business, i.e.:
If the due diligence has been carried out satisfactorily and the sale price established, it is necessary to lay out the contract for sale of the company. In Greece, contracts for sale of a company are covered by the respective general provisions of civil law in the Greek Civil Code (Greek: AK = Astikos Kodikas) ensuing from the fields of sales and warranty legislation and, depending on the contract’s regulations, other relevant Greek Civil Code provisions. The Greek Commercial Code contains other pertinent regulations (Greek: Emporikos Kodikas).
In addition to the “essentialia negotii”, i.e. details of the parties, the contract of sale contains an accurate description of the object of the sale and the sale price, as well as regulations pertaining to warranty, assurances and guarantees, which are integral parts of any contract for sale of a company. The contract also customarily contains matters relating to assumption of rights and obligations arising from the target’s existing contractual relationships, possible exclusions of liability and barred claims, contractual penalties, prohibitions of competition and arrangements for reversing the transaction in the event of failure to fulfil the primary obligations.
In the event of the vendor breaching the obligations under the contract of sale, the purchaser shall be due the opportunity to reduce the sale price and an entitlement to remedy or substitute delivery. If the contractual performance is delayed or not rendered at all, the purchaser can demand fulfilment and indemnification or rescind the contract of sale and assert claims for compensation due to non-fulfilment.
In the case of joint-stock companies, the purchase or investment is completed as part of what is known as a “share deal”, by transferring the shares to the company in question. In the case of a limited liability company this takes place by transfer of the equity whereas, in the case of the unlisted company limited by shares, the transfer is performed by acquiring shares. Although a notarized contract of sale is required to sell equity in a limited liability company, in the case of the company limited by shares, bearer shares can be transferred by a straightforward (holographic) sales agreement. Certain formalities must be observed, however, when transferring registered shares. Where listed companies limited by shares are concerned, on the other hand, the equity is purchased via the stock exchange.
The purchase of assets in a Greek company is called an “asset deal” and is considered if the emphasis is not on transfer of the company per se, but on transfer of its assets.
If takeover of the company creates an especially big company, or if it occupies a high-profile market position, the purchase should also be reviewed from the point of view of Greek antitrust law. In this case, pursuant to Law 3959/2011 Greek antitrust law applies to takeover of companies at national level and European antitrust law applies to international company takeovers.
The Greek state grants generous tax breaks to company reorganizations, amalgamations and break-ups according to the Greek limited liability companies act and the Greek Companies Act. Laws 2166/1993, 1297/1972 and 2386/1996 contain the pertinent statutory regulations. Pursuant to Art. 3, Law 2166/1993, no taxes and fees are thus levied on the transaction.
According to Article 7 of Law 2386/1996, up to 25% of the net profit is exempt from income tax for the first five financial years from transfer to strengthen medium-sized companies that have been created as a result of amalgamation of all forms of newly formed or absorbing company (partnerships, limited liability companies, companies limited by shares). (The company that has been taken over may not be a company limited by shares, though).
Because of these circumstances it can be wise to switch from forming a new company to acquiring an existing company (e.g. by consolidation/amalgamation or break-up), and thus enjoy the said tax breaks and have recourse to other advantages through a change of corporate structure.
The previous legal structure of an existing company can be changed to a different legal structure by means of reorganization involving a change of form. This is called a company reorganization. Greece does not have a standard law pertaining to reorganization. Some of the pertinent regulations are contained in the Greek Companies Act 2190/1920 (Article 66 of the prevailing version of the Companies Act as amended by Law 2339/1995 and Article 67 of the prevailing version of the Companies Act as amended by Law 409/1986). The pertinent regulations are also found in the Greek limited liability companies act 3190/1955 (prevailing version of Article 51 of the Limited Liability Companies Act as amended by Law 2339/1995 and Article 53 Limited Liability Companies Act).
According to this, legal entities domiciled in Greece can be reorganised by means of consolidation/amalgamation, break-up (splitting up, spinning off, divestment), and transfer of assets or change of structure.
Pursuant to Article 51 Greek Limited Liability Companies Act and Article 66 S.A. Companies Act, reorganization of a Greek company limited by shares (Anonymi Eteria = AE) into a limited liability company (Eteria Periorismenis Efthinis = EPE) through a change of structure takes place by means of notarized resolution approving reorganization by the general meeting of the legal entity wishing to change structure, following prior valuation of the assets and liabilities. The resolution approving reorganization and the requisite declarations of consent from individual shareholders must be recorded by a notary. The provisions on formation pertaining to the new legal structure must be applied to the change of structure.
Pursuant to Article 67 Greek Companies Act, reorganization of a Greek limited liability company into a company limited by shares requires a resolution passed by a three-quarters majority of the general meeting, following prior valuation of the assets and liabilities. The notarized reorganization resolution must contain the Articles of Association of the company limited by shares, details of composition of the first Board of Directors and the following information and be submitted to the Ministry of Trade or its branch office at the local Prefecture for approval.
The notarized resolution on reorganization contains:
The company’s assets and liabilities must be evaluated beforehand. The reorganization is subject to the provisions on disclosure in the Limited Liability Companies Act.
Reorganization of a general partnership (Omorhythmi Eteria / O.E.) or limited partnership (Eterorhythmi Eteria/E.E.) into a limited liability company by means of a change of structure takes place pursuant to Article 53 Greek Limited Liability Companies Act, through a notarized reorganization agreement. The notarized agreement contains the information given above for the company limited by shares.
Unless its deed of partnership provides otherwise, pursuant to Article 67, §2 S.A. Companies Act, reorganization of a general partnership or limited partnership into a company limited by shares occurs as the result of a unanimous resolution by all the partners and following prior evaluation of the assets and liabilities.
The name of the legal entity changing structure may be retained as part of the limited liability company’s name. Following formation the general and limited partnerships’ personally liable partners will be liable for the old liabilities of the company changing structure until the disclosure requirements have been fulfilled.
Pursuant to Article 68 et seq of the S.A. Companies Act and Article 54 of the Greek Limited Liability Companies Act amalgamation of limited liability companies or companies limited by shares is possible either
In the case of amalgamation a company transfers all its assets to one ore more existing or newly formed companies.
Pursuant to Article 54 Greek Limited Liability Companies Act, for a limited liability company the merger must be approved by a three-quarters majority of votes by the participating companies. The merger may only be completed two months after the disclosure requirements have been fulfilled if no creditors of the company have objected. Furthermore, pursuant to Article 55 of the Limited Liability Companies Act, the parties must conclude a notarized contract of consolidation/amalgamation contract, which contains the information according to the material provisions of the Limited Liability Companies Act.
Where a company limited by shares is concerned, merger is governed by Articles 68-80 of the S.A. Companies Act (Law 2190/1920, respective prevailing version of Articles 68-80 as amended by Presidential Decree 497/87). Pursuant to Article 72 S.A. Companies Act, merger requires a resolution at the general meeting of all the shareholders involved in the amalgamation. According to Article 69 Companies Act, a draft consolidation contract/amalgamation contract is required first.
Pursuant to Article 74 S.A. Companies Act, the merger agreement must be approved by the Greek Ministry of Trade (> local prefecture). The general meeting’s merger resolutions are submitted for this purpose, together with the notarized merger agreement, plus a declaration according to Law 1599/1986. The pertinent disclosure obligations must be adhered to at every stage.
Merger by means of forming a new company takes place according to Article 80 S.A. Companies Act, with corresponding application of the provisions on mergers contained in Articles 68 to S.A. 77 of the Companies Act. A new company emerges from merging of the previous companies.
Break-up of Greek companies limited by shares is regulated in Articles 81-89 of the S.A. Companies Act and possible either as a result of merger, formation of a new company, or formation of a new company by merger.
According to Article 88 S.A. S.A. Companies Act the provisions on break-up in Arts 82-86 S.A. Companies Act accordingly apply to break-up by formation of a new company.
Break-up by merger and forming a new company takes place according to Article 89 Companies Act, with corresponding application of Article 81 §4, 82-87, or of Article 88 S.A. Companies Act as applicable.