Succession during the reorganization of legal entities: what you need to know

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Doing business involves many nuances: from bookkeeping to reporting to regulatory authorities. But what if the copyright needs to be transferred to another person? What is the procedure for succession in the reorganization of a legal entity? This may be necessary in a variety of situations: the sale of a ready-made business or the transfer of a business to heirs, for example. In any case, you need to know the basic rules of succession during the reorganization of legal entities, correctly draw up the documentation so that after any problems none of the participants in the transaction arises and the business continues to work like clockwork. The article shows the main provisions on which you need to act when you need to change the owner of the company.

What is reorganization?

To begin with, let's analyze what the process of reorganization is, what varieties of it exist andhow to play it.

Reorganization is a procedure for the liquidation of a legal entity, as a result of which the main production assets of the enterprise are preserved, but the rights and obligations (excluding those that are prohibited by law to be transferred) to them go to another legally registered enterprise through succession. The process explains the end of the existence of one legal entity by the creation of another.

What types of reorganization are there?

There are five ways to reorganize:

• Merge. Instead of the first and second organizations, a third one appears - it receives all the rights and obligations of the liquidated enterprises.
• Joining. One firm ceases to operate independently and becomes part of the second. That is, the process will include the expansion of the second organization and the liquidation of the first.
• Separation. One enterprise is divided into two separate ones, and they continue to operate independently of each other. This procedure is the exact opposite of merging.
• Select. Within the framework of one company, a second one appears (this may be a separate structure, for example, an organization selling furniture has a trucking service), the rights and obligations of both remain the same as they were originally.
• Transformation. Instead of one legal entity, another appears, all the rights and debt obligations of the liquidated company are transferred to it, that is, the subjects are replaced.

It is noteworthy that any method other than spin-off necessarily occurs through the liquidation of the previous enterprise and is carried out onlywith the consent of all its founders, on the basis of a general decision of the meeting of participants. A distinctive feature of the reorganization will be the transfer of rights from one enterprise to another (excluding those that are prohibited by law from transferring).

The concept of succession

Succession during the reorganization of legal entities is a procedure in which rights and obligations are transferred from one company to another, their content is not modified as a result, only the subject of law changes. The procedure for carrying out the procedure is regulated in the Civil Code and is implemented by drawing up the relevant documentation and filing applications with regulatory authorities. Based on the type of reorganization chosen, the methods of succession will vary. Designate 2 predominant types of succession: universal and singular. The basics of the first and second will be the same, but there are significant differences.

Universal Succession in Legal Entity Reorganization

Universal succession means the complete replacement of one owner by another. In the legislation there is another definition - the transfer of rights. The heir receives all the obligations and rights of the predecessor in full. The only exceptions are those rights that are prohibited by law to transfer. These include any type of license, the right to keep and use weapons, the production of medicines and alcoholic beverages, and so on. Universal succession in the reorganization of a legalpersons is the predominant type of process implementation, typical for mergers, acquisitions, transformations, divisions.

Singular Succession

A feature of the singular type is the receipt of only some powers, in other words, partial succession. This type can be used when a separate structure is allocated in an organization. Parts are divided proportionally, that is, the granting of a large amount of rights is combined with the award of large duties and vice versa. This type is used much less frequently in practice.

Are obligations removed when transferring rights?

Obligations of a liquidated enterprise, debt costs in no case stop. Together with the rights to organize, they fully pass to the successor. Moreover, creditors must be notified of the reorganization in writing (established by Article 60 of the Civil Code), and they may demand early repayment of debts. To satisfy such requests, however, the legislation does not oblige. However, none of the creditors and other interested parties can somehow challenge the right to reorganize and transfer debts to the new owner. But we must not forget that until the regulatory authorities are provided with confirmation that all creditors have been notified of the replacement of the debtor, it will not be possible to submit documents for the transfer of rights. Moreover, it is necessary for everyone to inform about it personally, only after that to give announcements in newspapers, government publications.

Of course, they try to use the transfer of rights procedure and not indecent purposes. Businessmen often try to get away from budget debts by changing the legal form, but such actions only lead to criminal trials. Regulatory authorities will definitely check accounting and finance statements and will certainly reveal the fact of fraud, so such attempts are futile.

It should be added that the new owner is awarded the set of obligations and rights that were not taken into account during the succession procedure, were disputed by the parties or appeared after.

Reorganization and liquidation of legal entities, succession

The procedure is performed sequentially and in the following order:

• It all starts with a general meeting of the company's participants, where the regulation on closing the organization is unanimously adopted, and the relevant documents are signed by the head. A decision must also be made about the future of the property - which company to open as a replacement, which organizational system to choose, and so on.
• The next step will be the creation of a new enterprise, the preparation of constituent documents, the election of a leader (if an existing third-party company does not become the successor).
• The procedure for the liquidation of the previous organization is being completed, documents are being submitted to the regulatory authorities for inclusion in the state databases of a new legal entity. By this time, it is necessary to notify all creditors and other interested parties about the changes, draw up a balance sheet for the enterprise, evaluate all the property that needs to betransfer.
• Succession during the reorganization of a legal entity is carried out in exactly this sequence. It is also mandatory to submit an announcement to the specialized media about the transformation of the organization, and notify creditors and all interested persons and enterprises in writing. As a result of failure to fulfill this obligation, the regulatory authorities will issue a considerable fine, or may even refuse to process the transfer of rights.

Laws Governing the Succession Procedure

Succession during the reorganization of legal entities is carried out on the basis of Article 58 of the Civil Code. Other words of the law giving recommendations regarding the procedure can be seen in the 57th, 59th, 60th, 129th and 387th articles of the same code.

Required documents for registration

Assignment upon reorganization of a legal entity is formalized by the relevant documentation. The main paper during the implementation of the procedure will be the transfer act. It is filled in by the liquidated organization and approved by its CEO. The act is an integral part of the process and is submitted along with all other documents when registering a new company that has arisen through reorganization, registration will be denied without it.

When a division or spin-off occurs, managers need to draw up a separation balance sheet as well. This sheet will show finance, debt costs, movable and immovable property, intangible reserves, distributed among start-up firms according to theirshares. This document must be drawn up together with the deed of transfer. That is, when splitting and selecting a document, there will be two.

In both papers, the data are approximate, but contracts, checks, on the basis of which the amounts are taken, are necessarily attached, in order to be able to see where property prices come from, what depreciation is taken into account, and so on. Naturally, to determine the value of the property, it is necessary to invite independent appraisers.

Form of the deed of transfer can be downloaded on the Internet. There is no special form for the separation balance sheet; instead, the balance sheet is used, where you can add the necessary columns. It is mandatory to indicate the date of drawing up the act, as of which the calculation was made. Optionally, a clause is indicated saying that the act is transferred to the regulatory authorities, taking into account the modifications that may have occurred (for example, depreciation).

When will the procedure be considered completed?

Succession in the reorganization of legal entities is carried out from the date of the appearance of an entry on the creation of a legal entity in the Unified State Register of Legal Entities or the appearance of an entry on the liquidation of an organization. This step marks the complete transfer of all rights and obligations to the successor and the completion of the reorganization. Until the entry in the register, the right of ownership of the organization belongs to the predecessor.

What problems might arise?

In addition to the incorrect execution of documentation, during the process of succession during the reorganization of legal entities, the appearance andother complexities. Mostly they relate to shortcomings in existing laws, which are aimed more at liquidating rather than resolving disputes over debts and obligations. So, for example, there is still no single and mandatory form for filling out documents and requirements for their content, there are no papers that can be submitted to regulatory authorities in confirmation of the notice of the reorganization of creditors and interested parties. Problems of succession in the reorganization of legal entities should be minimized after the implementation of appropriate reforms.

It is natural that problems arise if the main conditions for the execution of the procedure are not met: a written notification of all interested parties about upcoming changes, a well-written deed of transfer, the value of the transferred property in which is confirmed by independent appraisers and attached checks.

Conclusion

Succession during the reorganization of legal entities means that the new owner of the organization takes over the entire company with all costs. This process can be reproduced on your own or contact lawyers, however, given the shortcomings in the legislation, it will be much easier to resolve this issue with a specialist. In any case, we must not forget the key rules for notifying interested parties, it is important to correctly draw up transfer documents.