Venezuela is currently going through a very complex situation in which the climate for doing business has become difficult for all parties involved in any part of the economic process. The regulatory burden for entities doing business in the country is very high, and companies are required to be registered, keep in place records and processes in a vast amount of governmental entities, a fact that requires the commitment of a substantial amount of resources and time for each entity that exists and operates in the country. As a consequence of the foregoing, many businesses that were structured with various legal entities for different reasons, including tax and liability mitigation, have opted to downsize their operations by merging their subsidiaries into one or some few entities, in order to have fewer structures to operate.
The reality described above also permeates into the complexities of successfully completing a merger in Venezuela, where a number of filings must be made in order to perform the legal steps required to close a merger. In such regard, the process of completing a merger will require proper organization, planning and will typically last for approximately 6 months before it will be completed.
From a legal standpoint, the decision to merge two companies shall be adopted in the shareholders’ meeting, a meeting that would discuss how both entities should be merged. The Articles of Incorporation of the companies often contain special quorum and voting requirements in order to approve a merger, but if the Articles of Incorporation are silent, the decision shall be adopted in a meeting where 75% of the shares representing the total capital is present and with the affirmative vote of at least, half of the shareholders attending the meeting.
The companies to be merged shall enter into a “merger agreement” which shall be executed by authorized representatives of both parties. The merger agreement must set forth the terms and conditions of the merger, such as specifications that could lead to the survival of the entity, and conditions that could cease the entities’ existence, as well as any other matter that may be relevant. Even though the law does not specifically require it, commercial registries require that the merger agreement should be notarized.
Financial statements of both companies dated on the date of the merger shall be prepared and presented to the commercial registry together with the notarized merger agreement and the shareholders meetings of both companies approving the merger.
It is important to point out that the registration processes before the Commercial Registries are frequently delayed for many reasons, including the fact that Commercial Registries often request changes to be made on the documentation that has been presented, to the form in which documents are presented or in the supporting documents that shall be filed. These requirements changes from one Commercial Registry to another. Therefore, the timing of the merger is an important issue and so, it is very crucial to go beforehand to the Commercial Registry with much anticipation as possible, so as to understand the requirements established by the Commercial Registry in which the specific merger documentation will be registered.
Once the shareholders meetings are registered in the Commercial Registry or registries the merger agreement shall be published in an authorized legal publication. In practice, the shareholders meetings approving the merger are also published.
The merger will not be effective until a 3-month period which will be counted from the date on which the publication previously indicated has been made. The Commercial Code establishes that the merger may be closed before such period if evidence of payment of the company’s debts or the approval of all creditors is evidenced. However, this is very unusual since in practice, there are just too many potential creditors for any given company, and the 3-month period is seen in practice as almost mandatory without exception.
During the 3-month period indicated before, any creditor can oppose the merger, which if done, will suspend the merger until the suspension is lifted through a definitive judicial decision.
Once the 3-month period elapses without any opposition from the creditors of the merging companies, the merger may become effective and the surviving company shall assume all rights and liabilities of the company that ceases to exist. In such manner, most practitioners and authors assume the position that the surviving company is the universal successor of the company which ceases to exist.
Once the merger becomes effective, many notices to all kind of governmental entities shall be made. In such regard, the Tax administration shall be notified of the merger within one month from the date the merger became effective. Also, an income tax return shall be filed for the “short” fiscal period of the entity that is extinguished and that will end on the date the entity ceases to exist.
In addition, all governmental entities in which the company that ceases to exist is registered (such as the social security administration, apprenticeship programs, housing and other parafiscal entities) shall be notified of the merger so that their records may be properly updated to reflect the surviving entity as successor of the entity that ceased to exist.
Another matter that shall be dealt with much care is the labour situation of employees of the company that ceases to exist. In such regard, prior to the merger, a strategy and plan shall be decided and implemented setting forth the steps and timing that will be taken vis a vis the employees of the company that will cease to exist. The company shall determine if it will carry out a procedure of notification of “change of employer” where notices of the change of employer are given to both employees of the company that will cease to exist and labour administrative authorities, indicating that the surviving company shall be the new employer of the employees of the company that will cease to exist. Employees that do not wish to continue as employees of the new surviving company may as well leave the company and request severance payment as if the company terminated them.
Article 280 of the Venezuelan Code of Commerce.
 Based on an Article 23 of Resolution Number 19 of the Ministry of Interior, Justice and Peace dated January 13, 2014