Mergers in Costa Rica | A Practical Roadmap for Operating Companies

BLP Legal | Mergers of operating companies in Costa Rica extend well beyond a formal corporate transaction. They require coordinated execution across legal, regulatory, tax, labour and operational dimensions, with strict adherence to procedural milestones and timing considerations. This guide by BLP Legal outlines the key stages and practical issues involved in merger processes, offering a structured framework to ensure compliance, continuity of operations and risk mitigation throughout the transition.

The merger of companies constitutes a legal mechanism through which two or more entities are integrated into a single entity, either by absorption (where one of the entities absorbs the others) or through the creation of a new company. Both modalities entail the dissolution of the legal personality of the absorbed entities, as well as the transfer of their assets, liabilities, rights, and obligations to the surviving entity.

In the case of economically active entities, the merger process involves compliance with several milestones from a corporate, tax, operational, regulatory, labor, and asset registration standpoint. The following outlines the key milestones and practical considerations to ensure an orderly transition, in full compliance with Costa Rican regulations.

1. Prior review of active agreements and permits

Before formalizing any step of the merger, it is essential to conduct a thorough review of the active agreements of the involved entities in order to identify:
a. Restrictive or limiting clauses regarding a potential merger, which may require obtaining prior consent from contractual counterparties.
b. Provisions requiring contractual notices derived from the merger, whether prior to or following its execution.

For entities subject to governmental supervision or special regulation based on their line of business, an additional regulatory review is recommended to ensure compliance with all applicable requirements.

2. Execution of relevant documents and publication of notice

The formal merger process begins with the execution of a merger agreement, which must subsequently be ratified through shareholders’ meetings of the entities involved.

The minutes of the meeting of the surviving entity must include amendments to the bylaws affected by the merger, including, at a minimum, a capital increase resulting from the aggregation of the share capital of each participating entity. If the absorbed entity or entities are wholly owned by the surviving entity, a capital increase may not be required; however, this must be expressly stated in the relevant minutes.

If the merger results in the creation of a new legal entity, the approval meetings must include the bylaws of the new entity.

Once the approval meetings have been held and their minutes notarized, a merger notice must be published in the official gazette (La Gaceta). Any interested party may oppose the merger within one month following publication, which will suspend the merger until: (i) a court determines that the rights of the opposing party are adequately protected, or (ii) the opposition is dismissed.

3. Accounting and employer effectiveness

The merger becomes effective vis-à-vis third parties upon its registration. Since accounting and payroll processes are typically aligned with the beginning or end of a month, the merger documents may establish an accounting and employer effectiveness date prior—but close—to the expected effective date, when the merger is by absorption.

This accounting effectiveness date has no tax effects, as tax closing is determined solely based on the registration date of the merger.

For example, if the expected effective date is the 10th of a given month, the accounting effectiveness date may be set as the first day of that month. This allows for the accounting closing of the absorbed entities and the transfer of employees to the surviving entity’s payroll in alignment with operational needs.

4. Registration and update of corporate records

For the merger to be fully effective, the notarial deed containing the merger resolutions must be filed for registration.

Registration requires that the one-month opposition period has elapsed. If filed earlier, the National Registry will not complete registration until such period expires.

Once registered, the corporate records must be updated as follows:
a. Closing of corporate books of the absorbed entities.
b. (i) Opening of corporate books of the new entity, if applicable; or (ii) recording a new entry in the shareholders’ registry of the surviving entity to reflect the capital increase and updated ownership structure.
c. Issuance of share certificates reflecting the updated capital structure.

5. Transparency and Ultimate Beneficial Ownership Registry

Upon completion of registration, the resulting entity must file a declaration before the Transparency and Ultimate Beneficial Ownership Registry:
a. If a new entity is created, an ordinary filing must be submitted within 20 business days from the effective date of the merger.
b. In the case of a merger by absorption, an extraordinary filing is required within 15 business days if the share capital of the surviving entity increases.

6. Tax deregistration of absorbed entities

Following registration, the absorbed entities have one month to process their tax deregistration through the TRIBU-CR system, indicating the merger registration date as the termination date.

This step must be completed after filing all pending tax returns. After this period, the Tax Administration will automatically update the status of the absorbed entities to "Deregistered ex officio due to merger."

7. Employer substitution

If the absorbed entities have employees at the time of the merger, an employer substitution will occur under Article 37 of the Labor Code.

The surviving entity assumes all labor and social security obligations, including maintaining all employment conditions and seniority.

Employees must be removed from the payroll of the absorbed entity and added to that of the surviving entity, and the substitution must be communicated to them. Updating employment agreements is also recommended.

8. Update of permits and public services

Based on the prior regulatory review, the surviving entity must update permits and public services:

If operations do not continue at the same premises: cancel permits, update ownership where needed, and terminate utilities.
If operations continue: update ownership of permits and utilities to reflect the surviving entity.

9. Update of registered assets ownership

If the absorbed entities hold registered assets, ownership must be updated after the merger, as this is not done automatically.

For movable and immovable property, transfer taxes and registration costs apply, even if the entities share the same shareholders.

10. Update of bank accounts and insurance policies

If the absorbed entities maintain active bank accounts or insurance policies, the surviving entity should coordinate with banks and insurers to transfer or close them and comply with any KYC requirements.

The proper execution of a merger process requires comprehensive planning that considers not only legal and procedural requirements but also operational, tax, labor, and registration impacts at each stage. Adequate coordination and strict compliance ensure an efficient transition and minimize risks and contingencies. Accordingly, specialized legal advice throughout the process is essential.

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