Merger of Commercial Companies in Egypt

The merger of companies in Egypt is one of the important issues raised in practice. Given the appreciable growth in economic performance in the country, the increased commercial competition around the world, and the presence of transcontinental companies and increased competition among them, the idea of a corporate merger has then become an idea adopted by many companies with similar activity, for many reasons, including reducing expenses or costs, limiting competition, increasing production or increasing capital. Also, the companies seeking a merger found a motivation to find legal regulation of the merger process.

“Merger” means a contract whereby one or more companies are merged into another company, by the dissolution of the merged company and transfer of its financial liabilities to a new company. Hence, at least one of the two companies shall be dissolved, without subjecting any of the merged companies to liquidation.

Forms of mergers in terms of their impact on the legal personality of the company or the companies involved in it (merger by consolidation - merger by absorption).

1. Merger by consolidation, which is the most common:

- It means a legal consolidation of one or more companies to another existing company, so the first company merges with the second to become one company. The first company (the merging company) becomes a part of the second company (the merged company), where the legal personality of the merged company terminates and its financial liability is transferred to the merging company. While the legal personality of the merging company shall remain, the scope of its capital shall be increased to the extent of the value of the assets of the merged company.

- Therefore, the merging company will be solely the party that has the right to litigate concerning the rights and obligations of the merged company.

- Merger by consolidation requires at least two existing companies, with a legal personality, at the time of the merger.

- Consolidation of a project to a company is not considered a merger, as the project is not considered a company, because it does not have a legal personality.

- Also, the transfer of a part of a company's activity to another company as an in-kind share in its capital may not be considered a merger, so that the transferor company remains with its legal personality.

- The entry of a company (buyer) as a partner in another company, by the purchase of the shares of the other company may not be a merger, as the rights of the buyer company, relative to the other company, do not exceed its representation in the general assembly in proportion to its shares therein. Thus, each of the two companies maintains its separate personality even if the buyer company owned most of the shares of the other company.

- If the merged company is separated from the merging company, the merged company shall recover its independent legal personality out of the merging company, and shall become the holder of the capacity to represent its rights before the courts and to file legal actions.

- This issue is regulated by Egyptian law, under Law 159 of 1981 in Articles from 130 to  135.

2. Merger by Absorption (being the form that represents merger in its deepest sense).

- It means a combination of two or more companies into one new company, and, thus, a new legal personality is created, being the company resulting from the merger, which is completely different from the personality of each of the merged companies before the merger. Accordingly, while the legal personality of each of them shall terminate, a new legal personality will be created for the new company resulting from the merger and that was established through the merger process. The new company will possess all the assets and funds of the merged companies, will bear the debts and obligations of the two original companies, and will be a general successor to the merged companies. In regards to the new company, all the rules of incorporation shall be taken into account, as it is a new legal personality different from that of each of the merged companies before the merger.

- Accordingly, the agreement of two or more companies to work under joint management is not considered a merger, as is the case in some industrial or professional associations.

Also, the agreement of companies to implement a project and incur its liabilities and share profits and losses is not considered a merger, as this does not entail the termination of the legal personality of such companies, as each of them retains its legal personality and independent financial liability.

- This issue is regulated by Egyptian law, under Law 159 of 1981 in Articles from 130 to  135.

- In conclusion, the difference between merger by consolidation and merger by absorption is that:

1. While the legal personality of the merged company shall terminate by way of consolidation, the legal personality of the merging company shall remain.
   • In the merger by absorption, the legal personality of both companies (merging and merged) shall terminate.
2. Regarding the financial liability of the merged company, it becomes within the financial liability of the merging company under merger by consolidation.
3. Also, the rights and obligations of the merged company shall be transferred by way of consolidation to the merging company. In the case of a merger by absorption, the new company resulting from the merger becomes a successor to all rights and obligations of the merged companies.
4. As for the outcome of the merger, while the consolidation results in the expansion of the merging company with the joining of another company, the absorption results in a new company out of the merged companies.

- As the merger of companies aims at an increase in size and production, an opportunity to achieve business success, and as there are many reasons for companies to merge, however, there are two main reasons for merger i.e.:

1. Merger creates a robust infrastructure, by seeking to achieve more profits and business success. Thus, the merger helps to enter into new markets, and, entails reaching more customers, granting the ability to confront competitors and eliminating weaknesses of companies. Also, the merger is an opportunity for small businesses to achieve further success.
2. Acquisition by other companies: Acquisition means control of a company over another company. As a result, when some businesses decide to sell companies and some other businesses as they deem that acquisition is in their interests, the merger is the key.

      - Required Documents for Company's Merger by consolidation:

1. An application to the Head of Investment Services Sector, signed by the chairman of the board of directors or his/her representative to proceed with the merger process.
2. A valuation report, issued by such a committee as formed by the Authority, on the Net equity value of the two companies (merging and merged companies).
3. Minutes of the Extraordinary General Assembly (Partners Meeting Minutes) of the two companies (merging and merged) stating the approval of the valuation issued by the General Authority for Investment and Free Zones (GAFI). However, the minutes of the Extraordinary General Assembly of the merging company shall include approval to amend the articles of association relative to the merger process.
4. A true copy of the commercial register, provided that the issue date thereof shall not exceed 3 months for each of the two companies (merging and merged).
5. A copy of the power of attorney in the case of partnerships.
6. A copy of all the amendments and decisions issued to the two companies (merging and merged).
7. The merger agreement, including the development stages of the two companies (merging and merged) from the date of incorporation until the date of the merger.
8. A draft amendment to the merging company, including the articles to be amended before and after the amendment.
9. Approval of the Central Bank of Egypt (CBE) in the case of banks and exchange agencies.
10. A copy of the national ID of the applicant.
    1. In addition to the above-mentioned documents, the following documents may be required in special cases:
11. In the event of a name change: A certificate of non-confusion of the tradename, issued from the commercial register.
12. In the event of any amendment(s) to the company’s purpose: - Approval of the competent authorities, if applicable, as to the nature of the activity to be amended, such as  Approval of the CBE, Civil Aviation Authority, Ministry of Tourism, etc.
13. In the event of any amendment(s) to the activity’s location: A title deed of the activity’s location:
14. In the event of a capital increase: For joint-stock companies, a bank certificate shall be submitted stating the payment of at least 10% in the event of a cash portion to be paid.
15. A security inquiry, for any foreign partner(s).

To sum up, this Article is an overview of the merger process for commercial companies in Egypt. For more questions or inquiries about the procedures and controls for the merger of companies in Egypt, Please do not hesitate to contact us.