4.4.2.1 Introduction

By means of legal merger, all assets and liabilities of one or more disappearing entities are acquired by an acquiring entity by universal succession of title.1 The acquiring entity can be either an existing entity or a newly set-up entity.2 Upon the merger taking effect, each disappearing entity is wound up without being liquidated and members of the disappearing entity become members of the acquiring entity.

For this research, only the situation in which a disappearing GmbH is involved is of relevance, because only in this situation a shareholder of a GmbH is entitled to an appraisal right. As appears from § 3 UmwG, disappearing GmbH is able to merge with the following acquiring entities:

In order to initiate a merger, the representative bodies of the merging entities must prepare a draft merger contract. This merger contract is to be concluded between the entities involved in the merger.3 The draft merger contract must contain certain information, such as information on the names and seats of the merging entities and the prospective date as of which the acts of the disappearing GmbH are at the risk and expense of the acquiring entity. It must contain the exchange ratio with respect to the shares in the disappearing GmbH.4 Moreover, the draft merger contract should contain an offer for the purchase of the shares of dissenting shareholders by the acquiring entity. In the case of a legal merger involving a newly set-up entity, the merger contract also has to include the articles of association or partnership agreement of the new entity.5

In addition to the draft merger contract, the representative bodies of the merging entities have to draft a detailed written merger report.6 This merger report must include the details of the merger from a legal and economie perspective as well as the merger contract. In particular, the merger report must provide details regarding the exchange ratio with respect to the shares in the disappearing GmbH. The merger report has to clarify and explain the amount of the cash compensation with respect to the appraisal right. Additionally, the merger report must make reference to special difficulties, if any, with respect to the valuation of the entities and consequences of such difficulties for the shareholders.

The draft merger contract and the merger report must be sent to the shareholders (or partners if a partnership is involved) of the merging entities at the latest when convening the general meeting in which the approval of the merger contract will be dealt with.7 Within one week after receipt of the draft merger contract and the merger report,8a shareholder (or partner) may request that the draft merger contract be investigated by one or more independent auditors appointed by the court.9 The auditors have to prepare an auditors' report that, amongst other things, must indicate whether the exchange ratio and pos sible additional payment in cash is appropriate.10 The auditor costs are payable by the company.11

Subsequently, it is up to the general meetings of members of all entities involved to approve the merger contract. A resolution to approve the merger contract cannot be resolved by means of a shareholders resolution in lieu of a meeting.12 The resolution requires a three-quarters majority of the votes cast.13 Upon approval of the merger contract, the merger contract becomes valid. The resolution approving the merger contract has to be included in a notarial deed.14 The draft merger contract has to be annexed to the resolution of the general meeting.

After the general meeting has approved the draft merger contract, the representative bodies of the merging entities can conclude the merger contract. Similar to the resolution of the general meetings, the merger contract has to be included in a notarial deed.15 Finally, the merger enters into effect when the merger is registered with the trade register of the seat of the acquiring entity.16