Just as the previously presented division of companies, merger is also part of the so-called corporate structural modification transactions. They imply phases of preparation, decision and execution, and they can essentially modify the patrimonial composition and legal relationships among participating companies, their creditors and partners.

The term fusion in Spanish (merger) comes from the Latin term "fusio" which is defined as the action of uniting or melting two or more things or ideas. Within our legal corporate circles, the term applies to a company merger which is defined by the doctrine as "The union of two or more companies, until then different companies, so as to become one single company" or "when two or more companies combine and join their interests to form a new company having all rights, privileges, franchises and assets of the merged company." Therefore a company merger is a legal union of two or more companies constituted as independent entities in order to create a new single company or surviving one of the merged companies and absorbing the others.

It is important to distinguish among the different types of merger and even the notion of company acquisition, for even if these terms are often mentioned together, they are not equal and do not have the same meaning.

In our milieu, we carry out, on the one hand, the so-called Pure Merger or Merger by Integration, which is when two or more companies unite themselves to create a new one that due to the dissolution of the merged companies acquires their assets, liabilities, rights and obligations and its own legal personality, different from the extinct companies to carry out its objects. And on the other hand, we also carry out the Merger by Absorption or Incorporation, which is when a corporation related to the transaction absorbs the others; i.e.; that all companies are dissolved without liquidation save the one assuming all assets, rights and obligations of the others.

It is worth differentiating between merger and the term "Acquisitions" which is simply a Sale. Within this framework, when we talk about acquisitions, we refer ourselves directly to the sale or change of owners and titleholders of companies or corporations which is usually done through the Acquisition of assets or the Acquisition ofshares. In the case of a merger, assets of one or several companies are exchanged for shares of a new company or for those of the company surviving the absorption, even resulting in the dissolution of the merged companies. On the contrary, in the case of acquisitions, assets, part of them or shares of the same companies are exchanged for a price, not causing the mandatory dissolution of the selling or acquired company. It is important to mention as well that this sale of shares to acquire companies, at the level of public bids of sale or purchase are usually regulated and sometimes encouraged in the securities regulations of various countries so as to protect the public and the minority shareholders.

Taking the above into consideration, let's see how our Panamanian legislation regulates and applies the company merger transactions; legislation used recurrently and internationally to carry out this type of structural modification transaction.

First and foremost let's start with the principle that the company merger, under our Law, can take place between companies of different legal kind or nature. A merger can be done between companies of different jurisdictions with no need for them to be subject to the same legislation. We can have vertical or horizontal mergers, whether they are or not, companies of the same shareholder group, sister companies or corporations completely alien to each other.

Our legislation has two bodies of rules applicable to company mergers. On the one side we have articles 501 through 505 of our Code of Commerce regulating mergers for mercantile companies in general, and on the other side, articles 71 through 79 of Law 32 of 1927 containing regulations on mergers for Corporations. In addition, it is necessary to point out the application of article 11 –A of our Code of Commerce regulating the merger of Panamanian companies with foreign companies.

In accordance to the Code of Commerce rules, company mergers may be carried out provided that there is at least a 90 day prior notice to their creditors and through a merger notice that must have a Statement of Financial position, an agreement to settle liabilities and a summary of the merger agreement. These very same information details must be published so anyone believing to have the right to oppose the merger may do so. This opposition right must be judicially exercised, in such case the merger procedure will be suspended until the claim is decided. Once the 90 day period has elapsed, after the referred publication or if the submitted oppositions are resolved or withdrawn, the expected merger will have effect and the new company or the surviving one will acquire the rights and obligations of the extinguished or merged companies. This merger procedure is not usually carried out in Panama since most of the merger procedures involve corporations and they are done according to norms contained in Law 32 of 1927 regulating corporations.

Our legislation does not define the term merger as such and as we stated above, same seems only to take into account the so-called merger by integration. Even if it seems odd that our corporation law does not offer regulations for the basic Merger by Absorption, same is the most used figure in our milieu. Therefore, these rules are used in practice to carry out said transaction. Then, our Law 32 only states that ".....two or more corporations formed in accordance to this law may consolidate themselves so as to constitute a single corporation". Afterwards, the description of the merger procedure begins which basically includes the entering into an Agreement of Merger granted by the Board of Directors of each corporation, defining the terms and conditions of the transaction. Second, same establishes the approval of the agreement granted in such manner by the shareholders of each of the corporations involved. Then and in case the agreement is approved, the law requires the issuance of a certificate issued by the secretary or sub secretary of each corporation informing of the decision taken. Finally, the proper registration of the agreement granted in such manner at the Mercantile Registry is decided. It is here, after having done the proper registration of the agreement at the Registry that the merger has effect. The involved corporations will stop existing and the resulting or surviving corporation " will succeed the extinct ones in all their rights, privileges, powers and franchises as proprietor and owner of same, subject to the restrictions, obligations and duties that used to belong to the constituents....." In this regard and being produced the effect of the merger, the new company or the surviving company will assume all rights and obligations of the merged ones by virtue of the latter ceasing to exist without really going through a liquidation process. According to this body of rules, it is important to notice that the Articles of Association of any company may also establish specific conditions to carry out a merger process.

Finally, we have one of the most interesting rules of our commercial legislation, Article 11-A of our Commercial Code regulating Merger with Foreign Companies and widely used internationally by investors from around the world. This rule states that "One or more companies constituted according to the laws of the Republic of Panama may merge with one or more foreign companies to form one single company..." Nevertheless, for such purposes the rule demands a set of additional requirements.

First, it is required that foreign companies be registered in Panama under article 90 of law 32 of 1927 which basically is the "branching" procedure of corporations and includes protocolization and registration at the Public Registry of the corporation constitution deed, copy of the last balance with a declaration of the part of the capital intended to be used in the Republic of Panama and an authenticated Certificate of Good Standing according to the law. Once the foreign company registration procedure in Panama is fulfilled, the merger procedure can be carried out as described above. Nonetheless, after the merger is done, article 11-A presupposes another requirement. It states that in such cases where the company resulting from the merger is a foreign company, same must remain registered at the Mercantile Registry for at least 5 years after the day of the merger. During that time the foreign company must have an Attorney-in-fact in Panama with power to be served in the name of the company. If at any time the company has no Attorney-in-fact, the Registered Agent may be served. This last regulation seems to even depart from the intermediary passive nature of the Registered Agent in all cases but this is another matter to be considered another time.

In conclusion, we could state that the regulation of mergers within the Panamanian legislation is rather flexible and the setting is favorable to carry out national or international mergers. This could result in taking advantage of this figure before foreign legislations, making Panama a very appealing place for mergers.

After our pieces on company mergers and divisions, company transformation as a structural modification transaction is the only theme left. We will talk about it in our next article.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.