Are there points to be careful about when carrying out a divisional merger?

A divisional merger is a high-difficulty decision in which legal, financial, and tax interests are simultaneously intertwined in the process of restructuring a company, so you must first of all be aware that proceeding without a comprehensive prior review can lead to serious legal disputes or managerial losses.

In particular, because a divisional merger is a restructuring method premised on strict procedures under the Commercial Act, if the statutory procedures, such as a board resolution, approval by the general meeting of shareholders, disclosure, and registration, are not accurately observed, its validity may become the subject of dispute.

In addition, in the divisional merger process, the valuation of the company being divided and of the surviving or newly established company becomes a key issue, and if this valuation lacks objectivity and reasonableness, there is a high possibility that it will lead to fairness problems among shareholders or to litigation.

Furthermore, because a divisional merger directly affects not only major shareholders but also minority shareholders, sufficient shareholder protection mechanisms, such as guaranteeing appraisal rights, must be provided, and protection procedures, such as the creditor objection system, must also be thoroughly carried out so that creditors are not disadvantaged in recovering their claims due to the divisional merger.

In addition, because a divisional merger entails various tax issues, such as corporate tax and acquisition tax, proceeding without a prior tax review can give rise to an unexpected tax burden, so establishing a systematic merger plan with the assistance of an expert is essential.

In this respect, a divisional merger must be carried out carefully, on the premise of a comprehensive review encompassing law, finance, and taxation, rather than a fragmentary judgment.

For details related to a divisional merger, we recommend confirming through a consultation with a mergers and acquisitions attorney.

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