By: Antoine Del Sordo
From an economic standpoint, a merger is perceived as the union or blend of the assets of two or more entities to consolidate a singular common patrimony whose owner will be any of the entities involved in the merger or a new entity that emerges from the union of the original entities.1 Conversely, from a legal perspective, a merger is characterized by the consolidation of several legal entities into a singular cohesive legal entity.2
Explicitly, the General Law on Commercial Companies (Ley General de Sociedades Mercantiles) extends the provisions pertaining to mergers, as stipulated within such law to the general partnership, limited liability partnership, limited liability company, stock corporation, limited liability stock partnership 3, and simplified joint-stock company 4, having to comply each, also, with the form and terms that apply to them, in accordance to their nature regarding matters such as voting and attendance quorums required for Shareholders/Partners Meetings, rules for issuing calls, among other issues.5
As to civil partnerships, the Civil Code for the Federal District (currently, Mexico City) does not provide for any regulation concerning their merger. Nonetheless, in the absence of a specific provision that forbids it and in adherence to the principle of legality, which posits that what is not prohibited is permitted, the merger of civil partnerships is deemed acceptable, provided that the decision is legally made by the partners/shareholders meeting and observing the quorum majorities as specified in the By-laws.
In the context of a merger involving a civil partnership and a commercial entity, the doctrine displays divergent views. For instance, professor Jorge Barrera Graf argues that civil partnerships cannot engage in a merger with commercial entities due to the substantial alteration it would cause in their purpose and corporate purpose, thereby rendering a civil partnership incompatible with a commercial entity.6 Conversely, professor Alberto Moreno de la Torre asserts that for a merger involving a civil partnership and a commercial company to be legally viable, the civil entity must priorly undergo a transformation into a commercial company.7 Likewise, the Spanish lawyer Rodrigo Uría mentions that there are no real impediments that preclude a civil partnership from being a part in a merger process with a commercial company, contingent upon the decision is made in a lawful manner by the companies involved in the merger.8
Mexican courts have also studied the possibility of a civil partnership merging with a commercial company, which has been deemed valid in two theses by the Third Collegiate Circuit Court in Administrative Matters of the First Circuit.
In the thesis titled “MERGER OF A CIVIL PARTNERSHIP WITH A COMMERCIAL ENTITY, IT IS NOT A REASON FOR THE DENIAL OF ITS REGISTRATION IN THE PUBLIC REGISTRY OF PROPERTY AND COMMERCE, THE CIRCUMSTANCE OF NOT BEING PROVIDED IN THE LAW THE PROCEDURE TO CARRY IT OUT”9, it is mentioned that notwithstanding the absence of a specific procedure for the merger of civil partnerships in the Civil Code for the Federal District, this does not imply that it constitutes and illicit act, even when dealing with a merger of a civil partnership and a commercial company. In this context, the Court premises its argument on the fact that Article 2695 of the Civil Code for the Federal District that permits the transformation of a civil partnership into commercial entities by stating that “civil nature entities, which take the form of commercial companies, are subject to the Code of Commerce”, and concludes that the mentioned Article should be interpreted in a sense that the possibility of a merger of a civil partnership into a commercial entity is also allowed since the immediate and direct practical result, both of the transformation and the merger, is the same as when a civil partnership is transformed into a commercial entity by virtue of the merger.9 se menciona que a pesar de que el Código Civil para el Distrito Federal no establezca un procedimiento específico para la fusión de sociedades civiles, esto no implica que sea un acto ilegal, incluso tratándose de una fusión de una sociedad civil con una mercantil. En este sentido, el Tribunal parte de la base que al permitir el artículo 2695 del Código Civil para el Distrito Federal la transformación de sociedades civiles en mercantiles al establecer que “las sociedades de naturaleza civil, que toman la forma de sociedades mercantiles, quedan sujetas al Código de Comercio”, y concluye que dicho artículo se debe interpretar en el sentido de que también se reconoce la posibilidad de que una sociedad civil se fusione en una mercantil ya que el resultado práctico inmediato y directo, tanto de la transformación como de la fusión, es el mismo al transformarse una sociedad civil en mercantil en virtud de la fusión.
In this regard, when the partners of a civil partnership express their will to merge into a commercial company, the former ceases to exist and transforms into a commercial entity, subject to the respective commercial laws, and if this declaration of will adhere to the legal provisions applicable pursuant to the nature of each of the entities, even when there is no explicit procedure in the law for merging civil partnerships with commercial entities, by simply observing the legal principles that govern them according to their nature (among others, applicable attendance and voting quorum), the merger of both entities should be considered as existing.
On the other hand, in the thesis titled “MERGER, LEGAL FIGURE OF THE. IT IS NOT UNIQUE AND EXCLUSIVE TO ONE TYPE OF ENTITIES, THEREFORE THE ONE CARRIED OUT BY A CIVIL PARTNERSHIP AND A COMMERCIAL ENTITY IS LAWFUL”10, the same Court indicates that there is no obstacle to consider valid a merger between a civil partnership and a commercial entity, with the former being the absorbed and the latter the absorbing entity, because by virtue of this legal figure, when the civil partnership disappears and is incorporated into the commercial entity, it becomes an entity of that nature, updating the presumption of Article 2695 of the Civil Code for the Federal District.
The same could also be extrapolated in the case of a merger between a commercial entity and a civil partnership, in which the former subsists since no provision in civil or commercial law prohibits it.
Furthermore, this thesis also indicates that the interpretation of Article 222 of the General Law on Commercial Companies, which states that “the merger of several companies must be decided by each of them, in the form and terms that correspond according to their nature”, should be extensive in the sense that the merger is not exclusive to commercial companies. Therefore, in the case where the requirements provided for in the law and the By-laws have been met, both for the case of the civil partnership and the commercial company, it should be concluded that the merger of both entities is a lawful act.
In light of the above, although the doctrine is divided regarding the legality of the merger of a civil partnership with a commercial company, in practice, there seem to be sufficient arguments to conclude that it is a perfectly lawful act, provided that the entities involved in the merger comply with the requirements provided for in the applicable law and their respective By-laws.
Furthermore, given that the Civil Code for the Federal District does not provide any specific mechanism for the merger, it would be advisable to consider, on a case-by-case basis, the inclusion of specific basic regulations on the merger procedure in drafting a civil partnership's by-laws.
1 Sanchez Domínguez, Francisco D. “Fusión y transformación de sociedades mercantiles”. Revista de Derecho Notarial, núm. 94, México, 1986, pp. 691-707.
2 Ibid.
3 Artículo 227 de la Ley General de Sociedades Mercantiles.
4 Artículo 273 de la Ley General de Sociedades Mercantiles.
5 Artículo 222 de la Ley General de Sociedades Mercantiles.
6 Barrera Graf, Jorge. “Instituciones de Derecho Mercantil”. Porrúa, México, 1980, pp. 691-707.
7 Moreno de la Torre, Alberto. “Fusión, escisión y transformación de la sociedad anónima”. En Las sociedades anónimas, Cuadernos del Instituto de Investigaciones Jurídicas, UNAM, NÚM. 3, sep-dic., 1986, pp. 1037-1057.
8 Uría, Rodrigo. “Derecho Mercantil”. Marcial Pons, Madrid, 1995 pp. 329 a 344.
9 Tribunales Colegiados de Circuito, Octava Época, Tomo XI-Enero, Página 255, Tercer Tribunal Colegiado en Materia Administrativa del Primer Circuito, Amparo directo 543/92.
10 Tribunales Colegiados de Circuito, Octava Época, Tomo XI-Enero, Página 260, Tercer Tribunal Colegiado en Materia Administrativa del Primer Circuito, Amparo directo 543/92.
