M&A in Croatia – Legal Overview Focused on Private Limited Liability Companies (d.o.o.)

1. Introduction: Focus on Private Companies (d.o.o.)

Mergers and acquisitions (M&A) in the Republic of Croatia are regulated by a number of legislative acts. The key regulations governing M&A activities include the Companies Act (Zakon o trgovačkim društvima), the Joint Stock Companies Takeover Act (Zakon o preuzimanju dioničkih društava), and the Capital Market Act (Zakon o tržištu kapitala). Additional relevant legislation includes the Civil Obligations Act (Zakon o obveznim odnosima), the Competition Act (Zakon o zaštiti tržišnog natjecanja), and the Labour Act (Zakon o radu). Furthermore, depending on the nature of the M&A target, additional lex specialis may also apply, which can vary depending on the case.

The Companies Act defines the terms “spajanje” (merger) and “pripajanje” (absorption), which may be more accurately translated to the English terms “merger” and “absorption” rather than “acquisition.”

Given that the majority of companies in Croatia are structured as limited liability companies (društva s ograničenom odgovornošću i.e. d.o.o.), this article will focus primarily on M&A involving limited liability companies. While other forms of companies also engage in M&A activities, the regulatory framework and processes for limited liability companies are most commonly applied in the Croatian business environment.

2. M&A Process for Limited Liability Companies (d.o.o.)

2.1. Absorption

Absorption (Croatian: pripajanje) of limited liability companies occurs when one or more such companies are absorbed by another limited liability company without undergoing liquidation. In this process, the entire assets, liabilities, and equity of the absorbed company (or companies) are transferred to the acquiring company, in exchange for business shares in the acquiring company.

Upon completion of the absorption, the absorbed company ceases to exist as a legal entity. However, its shareholders receive shares in the acquiring company in proportion to the value of the transferred assets.

Unlike in some other types of transformations, the management boards of limited liability companies involved in the absorption are not required to prepare a formal merger report, nor is a mandatory audit of the absorption required. However, these elements may be introduced by mutual agreement and specified in the merger agreement.

Pursuant to Article 537 of the Companies Act, only the essential elements that must be regulated by a merger agreement in the case of an absorption involving limited liability companies (d.o.o.) are explicitly prescribed. These include:

• The nominal value of each share to be allocated to a shareholder of the absorbed company in the acquiring company;
• The identification of the shareholders of the absorbed company and the nominal amounts of the shares they are to receive in the acquiring company, especially in cases where such shares already exist in the acquiring company;
• In instances where the shares to be granted to the shareholders of the absorbed company are created through an increase of the share capital and confer rights or obligations different from those of the existing shares, such discrepancies must be explicitly stipulated in the merger agreement.

These provisions aim primarily to ensure the protection of the rights of the shareholders of the absorbed company. In addition to the mandatory elements, the merger agreement may also regulate other matters relevant to the implementation of this corporate restructuring process. For instance, the agreement may include a clause obligating the acquiring company to amend its articles of association accordingly.

Typically, in the context of absorption involving limited liability companies (d.o.o.), the acquiring company increases its share capital in order to issue new shares equivalent to the increased amount, which are then allocated to the shareholders of the absorbed company.

Upon registration of the absorption in the court registry of the seat of the acquiring company, assets and liabilities of the absorbed company are transferred to the acquiring company and the acquiring company becomes the universal legal successor of the absorbed company. Shareholders of the absorbed company become shareholders of the acquiring company.

2.2. Merger

When limited liability companies merge, they establish a new limited liability company to which they transfer all of their assets and liabilities, and their share capitals are combined.

The companies transferring their assets are considered the absorbed companies, while the newly established company is regarded as the acquiring company, as previously explained (see section 2.1).

Shareholders of the companies that cease to exist become shareholders of the new company upon its registration. In exchange for the shares they held in the absorbed companies, they receive shares in the acquiring company.

The fundamental difference between a merger and an absorption lies in the fact that, in merger, all participating companies transfer their assets to a newly established company and cease to exist, whereas in absorption, one or more companies transfer their assets to an existing acquiring company, which continues to operate.

Accordingly, the provisions on absorption apply mutatis mutandis to mergers. However, some provisions related to absorption cannot logically apply to mergers—such as those on increasing share capital for the purpose of an absorption.

Regarding mergers of limited liability companies, the Companies Act also contains specific provisions applicable solely to this process, for instance, provisions on decisions concerning the absorption and provisions on the form of the absorption agreement.

Specific aspects that distinguish a merger from an absorption include, for example, that the articles of association of the new company become valid only once they have been approved by a three-quarters majority of the votes cast by the shareholders of each of the merging companies. These provisions also apply accordingly to the appointment of members of the supervisory board of the new company, who are to be appointed by the shareholders of the merging companies.

Upon registration of the new company in the court registry, the assets and liabilities of the merging companies are transferred to the new company. If, during this process, the new company assumes obligations from bilateral contracts which had not been fully performed by either party prior to the merger and which are mutually incompatible or would impose an undue burden on the new company, the scope of such obligations is to be determined fairly, taking into account the contractual rights of all parties involved.

Upon registration of the new company in the court registry, the merging companies cease to exist. Shareholders of the merging companies become shareholders of the new company upon registration of the merger. The registration of the merger, as well as the registration of the newly established company, is published in the same manner as all other entries in the court registry.

3. Conclusion

The legal framework governing mergers and absorptions of limited liability companies (d.o.o.) in Croatia is well-defined and procedurally structured under the Companies Act. While the terminology may differ slightly from commonly used English M&A terms, the distinction between absorption (pripajanje) and merger (spajanje) is legally significant. In an absorption, one or more companies are integrated into an existing acquiring company, whereas a merger results in the formation of a completely new legal entity into which the participating companies consolidate.

Both procedures ensure a streamlined transfer of assets and liabilities without the need for liquidation of the involved companies. The Companies Act provides clear guidelines on procedural steps, the content of merger agreements, registration requirements, and the legal consequences of both mergers and absorptions. Particular attention is given to the protection of shareholders’ rights, especially in terms of share allocation and transparency of decision-making.

While many provisions apply equally to both procedures, certain aspects—such as share capital increases and the formation of a new articles of association—are specific to each and reflect the structural differences between them. The application of notarial procedures, documentation standards, and registration requirements all contribute to legal certainty and administrative clarity.

Given that limited liability companies are the most common form of business entity in Croatia, this structured approach to corporate restructuring underlines the practicality and accessibility of M&A mechanisms in the Croatian legal environment.