Types of Merger

Types of Merger

Thanks to the current evolution of the world economy, the amount of mergers and acquisitions is increasing around the world. Today, mergers of companies are standard corporate practices. Horizontal merger is a merger of companies that share the same field of practice on the same level. On the other hand, in a vertical merger a merging company merges either with its supplier or consumer.

Czech law provides a broad range of possibilities for company transformations, amongst which we recognize the following basic types of corporate transformations:

Types of Merger

Merger by Acquisition

In a merger by acquisition, one of the involved companies ceases to exist without process of liquidation and merges into the chosen company. The assets and liabilities of the ceased company are passed to its successor.


(Example: Company A merges with Company B. Company A ceases to exist, and all of its assets and liabilities are passed to Company B.)

Merger by Formation of a New Company

The main difference between the previous type of merger and merger by a formation of a new company, is that at least two of the companies involved cease to exist without liquidation and they merge into a newly formed subject, to which the assets and liabilities of the both ceased companies are passed.


(Example: Company A merges with Company B. Both companies cease to exist, and their assets and liabilities are passed to a newly formed Company C.)


As a result of the process of demerger, the former company ceases to exist and its assets and liabilities are transferred to two or more new successors.


(Example: Company A decides to demerge into two companies. Company A ceases to exist, and its assets and liabilities are passed to Company B and Company C.)


A spin-off is a demerger alternative. The spun-off part of a company is transferred to an existing or newly incorporated company, but the original company does not cease to exist. Spin-off is often used for tax purposes in cases of transferring real estate assets from the original company.


(Example: Part of the Company A is spun off to either a newly formed Company B or merges with already existing Company C.)

Change of company´s legal form

Once the company is incorporated and its legal form needs to be changed due to various reasons, such as business growth, there is always a possibility of transition of the legal form from one to another.


(Example: Company A is a limited liability company. Due to the successful financial year and need for further development, Company A decides to change its legal form into a joint-stock company in order to allow easier inflow of private equity.)

Cross-Border Transfer of Registered Seat

Within the European Union boundaries, it is possible to transfer the company´s registered seat to and from the Czech Republic without the necessity to liquidate the current company and incorporating a new one abroad.


(Example: Company A is incorporated in the United Kingdom and is governed by UK law. Company A comes to conclusion that the Czech market offers better business opportunities and more favorable taxation, so it decides to transfer its registered seat into the Czech Republic. Therefore, it is not necessary to dissolve the Company A in UK and incorporate a new entity in the Czech Republic. Company A would be after the cross-border transfer of registered seat governed by the Czech law.)

Transfer of assets to a shareholder

Due to the procedure of the transfer of assets to the company´s shareholder, the company dissolves without liquidation, and its assets and liabilities pass to one of the company´s partners. This procedure may be initiated either by the decision of partners or by the decision of the competent authority.


(Example: Company A is owned by two partners, Company B and Company C. Company B decides to leave Company A, and Company C decides to transfer the assets and liabilities of Company A to itself and to dissolve Company A, as there is no further need for it.)