How Do Companies Merge In Costa Rica?

Author:Ms Carolina Trejos
Profession:BLP Legal
 
FREE EXCERPT

The legal merger process between two companies consists of at least four stages.

There are several reasons based on which a company adopts the decision of merging with another firm, as well as different types of merger. Mergers may be classified into vertical, horizontal and conglomerates.

A vertical merger occurs when a company performs a "backward" or "forward" integration of its activities, e.g. the acquisition of a vendor of the required raw materials or a distribution company.

A horizontal merger occurs between two companies across the same business line, e.g. the merger of two beverage companies.

Lastly, conglomerate mergers are those that take place between firms engaged in different business lines, e.g., when a company that sells food stuffs merges with another firm engaged in the commercialization of cleaning products.

Mergers may consist in transactions under which a company is absorbed by a second firm, in which case the absorbed company will cease to exist legally-wise while the absorbing company survives. This type of merger is known as "merger through absorption".

There is a second type of merger in which two firms decide to integrate with each other in order to form a third company or a new legal entity.

In these two types of merger, both the absorbed firm and the two companies integrated with each other will cease to exist legally-wise and the surviving company or the new legal entity, as the case may be, will assume any rights and obligations of the absorbed firm or of the merging companies upon completion of the merger transaction in order to continue with their operations.

In Costa Rica, the legal procedure through which a merger is implemented consists of several stages.

Generally, a due-diligence process is conducted before the merger takes place. The purpose of this process is reviewing and analyzing the status of the entities to be absorbed or integrated. The main aspects that should be assessed are of a commercial-corporate nature, and also involve contractual, labor, tax and accounting issues.

As soon as the due-diligence process has been completed and once the parties involved are aware of the status of their targets, a second phase will begin which consists in the drafting and negotiation of a merger agreement where both parties will resolve upon the terms and...

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