Extraordinary Corporate Operations

What are extraordinary operations and what opportunities do they hold for businesses?

What are extraordinary operations?

As the word itself suggests, these are operations that go beyond the ordinary management of the company. extraordinary operations become necessary, that is, in delicate or transitional moments in the life of the company, passages that require, for example, a modification of the structure or even the legal form. Or moments in which a transfer of ownership or control of the company is necessary. Or, again, events from which we understand that the life of the company has reached its epilogue and it is therefore necessary to liquidate it.

Each of these cases is an extraordinary operation, that is, an operation capable of changing the course of the "history" of the company. In particular, the extraordinary operations are:

• Transformation
• Merger and Acquisition (also called M&A, Mergers and Acquisitions)
• Demerger
• Contribution
• Transfer
• Liquidation

Let's see each of these operations in summary.

Business transformation

We speak of "Transformation" when it is necessary to change the legal form of the company, i.e. frequently the transition from s.n.c./ s.a.s.  a S.p.A., S.r.l., etc. or from cooperative companies to profit-making companies and vice versa

It is good to remember that with the Transformation the legal form of the company changes but continuity with the past is equally guaranteed: the contracts (commercial relationships) remain unchanged, the same goes for contracts and relationships with employees and collaborators and even with the Revenue Agency. In short, Transformation is not an operation through which society can, in some way, escape its previous obligations. It is, instead, a tool that society can choose to use to enhance its capabilities.

But how does the Transformation work? The project is presented to the shareholders' meeting, which approves it. Once approval has been obtained, registration takes place in the business register which keeps track of the change that has occurred. Usually the main effects are those of the change in the responsibilities of the shareholders, as well as the modification of the capital structure and, consequently, of the company organisation.

Mergers and Acquisitions (M&A)

Usually these two terms are combined to form a single expression, but these are two different operations:

• A Merger refers to the process by which two or more companies join together to create a third entity. The relationship between the merging companies is essentially equal, although the hypothesis of the so-called merger by incorporation, in which one company incorporates the other without therefore creating a third and different entity.

Also in this case, a Merger plan approved by the corporate bodies is required. This project includes company evaluation activities (due diligence) and above all the determination of the share exchange ratios (to be clear: how much will the shares of the previous company be worth in the new corporate structure?)

• In the case of Acquisition, however, the relationship between the companies involved is not equal but subordinate: one company acquires the other through the acquisition of all or the majority of the shares.

Not always the Acquistions are amicable and deriving from an agreement between the parties. In fact, we often talk about Acquisitions. hostilei.e. operations in which the purchase is carried out despite the opposition of the acquired company.

Financing for this type of operation can be of different types: today, the case of "cash" payment, i.e. immediate payment in full through the liquidity of the purchasing company, is rare. Often, however, it takes place through debt (e.g. leverage buy out) or exchange of shares (e.g. merger buy out).

Splitting

The reverse process of the merger: from a previous company two or more companies are formed, often different from the original one.

More specifically, the corporate assets of the original company are divided among multiple companies. This can happen by incorporation (if the transfer takes place to an already existing company), in a heterogeneous way (i.e. the transfer takes place to bodies and organizations other than the original company) or the split can be in the strict sense (newly established companies that did not previously exist are generated from the original company). A few months ago it was introduced in our. legal system the split by spin-off  which partly performs the functions of an actual transfer of part of the company into a new legal entity (beneficiary)   entirely owned by the demerged company.

Contribution

Also in this case we are talking about transfers, but specifically assets (of different types) or even debts are transferred from one company to another.

Contributions can be in kind (in this case we are talking about assets, tangible or intangible, i.e. company assets: machinery, patents, shareholdings, etc.) or company (i.e. an entire complex of assets which can also include entire production lines, employees, etc.).

Transfer

The case of assignment is different from contribution, i.e. the sale of the company's business or part of it.

In the specific case, since it is a real sale, a negotiation activity with a specific contract is necessary. In this case, there are numerous tax considerations, which we take care of with our Corporate Tax Consultancy and Tax Litigation service.

Liquidation

Definitely the most delicate case, the one that formally marks the end of the company's life. With liquidation, the company closes and its remaining assets are transferred. The objective of this last phase of the company is to manage the so-called liabilities(e.g. paying creditors). The residual assets, where existing, are then distributed to the members, in proportion to the initial contribution.

The liquidation can be of different types: ranging from the voluntary one (if approved by the shareholders' meeting) to the judicial one (if it is ordered by the judicial authority).

In this case we undergo a more complex process than in the cases previously seen: first of all, a liquidator is appointed, i.e. a person external to the company who has the task of analyzing the company's assets and liabilities. Once the general framework of the situation has been understood, the liquidator proceeds with the realization of the assets, with the payment of the creditors and then, where possible, with theto distribute the remaining assets to the shareholders.

With liquidation there is the extinction of the company, through its cancellation from the business register and the total cessation of its activities.

Pros and cons

It is clear that some of the extraordinary operations seen represent a problematic phase in the life of the company (we are clearly talking about liquidation, but also potentially about demergers and others).

We must, however, keep in mind that for the most part extraordinary operations can be a "launching pad" for business activity, they can represent unrepeatable business opportunities, they can open avenues to new commercial agreements and give the company the possibility of obtaining a new, broader, more competitive market positioning. Let's think, for example, of the case of M&A, an operation in which, potentially, two companies enter into a strategic partnership to expand their market share.

Our job, as consultants, is precisely to support companies that undergo extraordinary operations to derive the greatest possible benefit from them for the company and all its stakeholders. The point is always to imagine an event as a turning point with high potential for a company: this is our way of acting on the market.

Discover our dedicated page to find out more!