By: Luis Gerardo Ramírez Villela
Following up on the reverse due diligence process for group mergers, below are some considerations to be considered for such purposes.
Legal Considerations
Before carrying out the merger process, a reverse legal audit must be carried out in order to identify the real situation of the merged company and correct any important findings that arise from such due diligence.
The most relevant aspects in any reverse due diligence process are: (i) corporate matters, (ii) banking and finance, (iii) contractual matters, (iv) intellectual property and data privacy, (v) regulatory matters, (vi) real estate, (vii) taxes, (viii) labor issues, (ix) insurance and bonds, and (x) litigation, among others, which would apply depending on the industry of each company.
It is important to mention that such reverse due diligence must also include accounting and financial matters for the benefit of the merger process.
Additionally, it will be important to consider any authorization that may be required from any authorities in connection with permits and licenses, as well as for antitrust matters.
Accounting and Tax Considerations
In accounting matters, both the merged company and the merging company must be up to date with respect to the approval of their financial statements and presentation to the tax authorities. The above, considering that, as explained, the balance sheet must be approved before and after the implementation of the merger.
Regarding the tax issues, the corresponding tax notices must be presented and up to date with any requirements before the start of the merger procedure.
In accordance with the provisions of the Tax Code, it is considered that there is no disposal in the case of a merger when the following requirements are met:
1.- The presentation of the merger notice by the merging company, within the month following the date on which said merger took place; and
2.- That after the merger and once it has taken effect, the merging company continues to carry out the activities it practiced before the merger was carried out, as well as the activities carried out by the merged company; with the understanding that it must carry out said activities for a minimum period of one year after the date on which the merger takes effect.
It is important to mention that the merging company must present the notice of cancellation of the federal taxpayer registry of the merged company, including a copy of the proof that the merger has been duly registered in the corresponding Public Registry.
