5 Forms of cross-border division and companies that can be involved in cross-border divisions

Although cross-border division is possible on the basis of the freedom of establishment, the possibilities of cross-border division are not unlimited.

The freedom of establishment is applicable to all forms of corporate restructurings, including (cross-border) division, but cannot go beyond the possibilities of divisions that are possible under the laws of Member States whose laws are applicable to the Companies involved in the cross-border division. The freedom of establishment cannot “introduce” new forms of corporate restructurings in other Member States.

The scope of the Sixth directive is limited to Ml divisions and partial divisions. It is very likely that most Member States have introduced both kinds of divisions in their legislation. If and when the outbound Member State as well as the inbound Member States provide for a certain type of division, the Companies involved in a certain cross-border division can be involved in that certain type of division. For example, since both Dutch legislation and German legislation provide for the possibility of a partial division, a company governed by Dutch law and a company governed by German law can be involved in a cross-border partial division. Some Member States, such as the Netherlands, also included other types of divisions in their legislation. Under Dutch law, a triangular division is possible. In the case of such a triangular division, a group company of the acquiring company – in most cases the company holding 100% of the shares in the capital of the acquiring company – allots shares to the shareholders of the dividing company instead of the acquiring company itself. The possibility of a triangular division is a rare phenomenon. When the possibility of a triangular division is not contained in the law of another Member State, a company governed by the law of the latter Member State cannot be involved in such a triangular cross-border division.

With respect to the question as to which Companies (or legal forms) can benefit from the freedom of establishment, the scope of the freedom of establishment is very wide. The freedom of establishment is applicable to Companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the EU (section 54 Paragraph 1 TFEU), where “Companies or firms” means Companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are non-profit-making (section 54 paragraph 2 TFEU). Although the scope of the freedom of establishment is wide, the freedom of establishment cannot “introduce” the possibility of cross-border division for Companies that cannot be involved in a national division under the laws of a Member State. If, for example, a certain legal form cannot be involved in a national division under the laws applicable to that company, it also cannot be involved in a cross-border division.