Corporate Transformations: Key Concepts, Forms & Legal Framework
In a constantly evolving business environment, where intense competition, continuous market shifts and the need to enhance sustainability have a decisive impact on business operations, corporate transformations constitute a key instrument for strategic growth, adaptation and, in some cases, business sustainability.
Through a corporate transformation, a company may reorganise its structure, expand its activities, restructure its assets or capital and seek to make more effective use of its business potential, without disrupting the continuity of its business operations.
Concept and Purpose of Corporate Transformations
Corporate transformations are legal acts and procedures governed by the relevant legislative framework through which the legal or organisational structure of a corporate entity carrying on a business is altered without, as a rule, requiring its dissolution and liquidation. Nor is a separate transfer of its assets under the rules of singular succession generally required.
They are, therefore, restructuring mechanisms designed to ensure business continuity under a new organisational or legal structure.
The reasons leading a company to pursue a corporate transformation are numerous and relate to financial, organisational and strategic objectives. They may include debt or capital restructuring, financial rehabilitation, attracting investment, expansion into new markets, reducing business risk, optimising the tax burden and reorganising the corporate structure.
In certain circumstances, the legislative framework itself may render a transformation necessary—or at least functionally appropriate—where access to specific opportunities or structures depends on the adoption of a particular legal form.
The Previous Legislative Framework
Until the entry into force of the principal legislation governing the field, Law 4601/2019, corporate transformations were not subject to a single, systematic regulatory framework.
The relevant provisions were dispersed across various pieces of corporate and tax legislation, regulating only specific forms of transformation and applying to limited categories of businesses. This fragmented framework created legal uncertainty, interpretative difficulties and, in certain cases, the need to resort to general corporate-law mechanisms in order to achieve results that should properly have been governed by a specific and coherent legal framework.
Law 4601/2019 responded to the need to rationalise the previous regime, which had been characterised by gaps, deficiencies, ambiguities and conflicting interpretations. At the same time, it clarified the relationship between corporate transformation law and tax law by distinguishing the corporate-law framework from the specific tax incentives that frequently accompany a transformation.
Law 4601/2019: A Unified and Systematic Framework
Law 4601/2019 introduced, for the first time into the Greek legal system, a comprehensive and systematic framework governing corporate transformations.
The Law consolidated the previously fragmented regime, expanded the range of permitted transformations and established a unified and coherent procedural framework with common fundamental characteristics. At the same time, it strengthened the protection afforded to shareholders and partners, creditors and employees.
In this sense, the Law serves three principal policy objectives: facilitating corporate transformations, ensuring a consistent approach to the relevant procedures and balancing the interests of all parties involved.
Structurally, the Law is divided into five parts: an introductory part, transitional provisions and three separate parts corresponding to the three principal forms of corporate transformation—merger, demerger and conversion.
The parts governing transformations are further divided into individual chapters. The first contains general provisions common to all company types, while the second lays down specific provisions and exceptions depending on the legal forms of the companies participating in the transformation.
Directive (EU) 2017/1132 also served as an important reference point for this legislative approach, contributing to the development of the prescribed procedures and the alignment of the Greek framework with European standards.
Types of Corporate Transformations under Law 4601/2019 (Article 1)
Article 1 defines the objective scope of Law 4601/2019. The parties cannot create another form of corporate transformation governed by this Law.
Three forms of corporate transformation are provided for: merger, demerger and conversion.
In a merger (Articles 6–53), an existing or newly incorporated company acquires, by universal succession, all the assets and liabilities of one or more other companies, which are dissolved without liquidation. A merger may take place either by absorption into an existing company or by the formation of a new company.
In a demerger (Articles 54–103), the assets and liabilities of a company are likewise transferred by universal succession, in certain cases without its dissolution and without liquidation, to at least two existing or newly incorporated companies.
The Law provides for three forms of demerger: full demerger, partial demerger and hive-down. The procedure may take place by absorption into existing companies, through the formation of new companies, or through a combination of absorption and the formation of one or more new companies.
A conversion (Articles 104–139) consists of changing a company’s legal form into another while preserving its legal personality. It does not, therefore, interrupt the company’s legal continuity; rather, the same legal entity continues to exist under a different corporate form.
Companies Eligible to Participate in Corporate Transformations (Article 2)
Article 2 provides an exhaustive list of ten corporate forms that may participate in the transformations governed by Law 4601/2019.
These are the Société Anonyme (S.A.), Limited Liability Company (E.P.E.), Private Company (I.K.E.), General Partnership (O.E.), Limited Partnership (E.E.), civil cooperatives, partnerships limited by shares, joint ventures, European Companies (SE) and European Cooperative Societies.
The legislation therefore covers the overwhelming majority of legal entities carrying on commercial activities, without imposing size restrictions or other quantitative criteria.
The legislative intention to expand the previously restricted range of permitted transformations is therefore clear, allowing a broader spectrum of corporate forms to participate.
These companies fall within the personal scope of the Law provided that they have their registered office in Greece (Article 1 §1). Although the Law refers generally to the company’s “seat”, the prevailing interpretation is that this refers to its registered office.
A transformation may involve companies of the same or different legal forms unless otherwise provided by law.
Furthermore, all eligible corporate forms may participate in a transformation in any of the capacities contemplated by the Law: as merging, demerged, absorbed, absorbing, contributing, beneficiary, newly incorporated or converting companies.
It should also be noted that, subject to the conditions laid down in Article 3, companies that have already been dissolved may also participate in a corporate transformation.
Forms of Transformation Not Covered by Law 4601/2019
Despite the significant expansion of the permitted forms of transformation, certain transformations remain outside the personal scope of Law 4601/2019.
These include transformations involving sole proprietorships and associations of persons that do not possess legal personality or commercial status, or are not registered with the General Commercial Registry (G.E.MI.), such as co-ownership of vessels, undisclosed partnerships and civil-law partnerships without legal personality.
The only exception to the requirement of legal personality concerns joint ventures carrying on commercial activities, which are treated as General Partnerships.
Three further categories of legal entities are excluded despite having commercial status: maritime companies, Recreational Maritime Companies (N.E.P.A.) and agricultural cooperatives.
Cross-border transformations also remain outside the framework of Law 4601/2019, as do certain specific cases governed by special regimes, such as restructuring and rehabilitation mechanisms.
Other forms of corporate transformation falling outside the objective or personal scope of Law 4601/2019 are permitted only where specifically regulated by other legislative provisions.
In the absence of such specific provisions, the economic effects of a transformation may be pursued through so-called “improper transformations”, involving a combination of ordinary corporate-law transactions, such as dissolution and liquidation, distribution of assets, incorporation of a new company or contribution of assets.
Such mechanisms may achieve a comparable economic result but are frequently associated with greater cost, complexity and uncertainty. They are therefore not the preferred solution, although they may sometimes be necessary.
Relationship with Tax Law
Corporate transformation law is closely connected with tax law, since tax legislation provides incentives and exemptions for carrying out such transactions.
This relationship is of considerable practical importance. It does not, however, alter the fact that the permissibility, conditions, procedure and legal effects of a corporate transformation are primarily governed by corporate law.
Until recently, the legislative framework governing the tax treatment of corporate transformations consisted of several pieces of legislation, including Legislative Decree 1297/1972 and Laws 2166/1993, 4172/2013 and 4935/2022.
This fragmentation created uncertainty and interpretative difficulties. Law 5162/2024 therefore sought to modernise and consolidate the tax framework and align it with Law 4601/2019.
Today, the principal legislative framework governing the tax treatment of corporate transformations is primarily comprised of Laws 4935/2022 and 5162/2024. The application of the legislation under which the relevant tax benefits are claimed must be expressly stated in the relevant draft transformation agreement.
As regards the relationship between Law 4601/2019 and provisions of tax or development legislation, the following fundamental distinction should be made:
(a) For transformations referred to in tax legislation that also fall within the scope of Law 4601/2019, the relevant tax legislation applies to their tax treatment. Their permissibility, conditions, implementation procedure and legal effects are governed by Law 4601/2019.
(b) For transformations referred to in tax legislation that do not fall within the scope of Law 4601/2019, their permissibility, conditions, implementation procedure and legal effects are governed by the applicable corporate legislation.
Corporate transformations constitute an important instrument for businesses pursuing strategic growth, adaptation and, in certain circumstances, sustainability.
As a rule, they benefit from favourable legislative provisions—including tax provisions—the framework of which facilitates the achievement of the relevant strategic, financial and organisational objectives.
The significant and highly important business drivers behind the choice of a corporate transformation will be the subject of our next article.
Managing Partner
Koumentakis and Associates Law Firm
Note: This article forms part of a broader series published by our Law Firm on corporate transformations. In this series, we analyse the principal relevant legislation—Law 4601/2019—article by article, always from a business-oriented perspective.