Introduction

While carrying out their commercial activities, companies may face the need to change their legal form (eg, where a company intends to conduct a new commercial activity for which the applicable legislation requires a specific legal form).

One recent case involved a limited liability company which intended to add the wholesale trade of oil, gas and their by-products to its commercial activities. However, under Law 8450,(1) only joint stock companies may engage in the wholesale trade of oil, gas and their by-products, and only upon obtaining the respective trade licence from the competent authority. Thus, in order for the company to be able to perform such activities, it had to be reorganised as a private joint stock company - the commonest form of joint stock company in Albania.

Article 214 of Law 9901(2) determines that limited liability companies and joint stock companies may be reorganised by:

• merging with another company;
• splitting into two or more other companies; or
• transforming into another legal form.

Transformation process

As noted, one of the options for a company's reorganisation is through the transformation of its legal form (ie, from a limited liability company into a joint stock company and vice versa). This is governed by Articles 228 and 229 of Law 9901. However, a limited liability company can transform into a joint stock company only if it is registered with the Albanian Commercial Register, kept by the National Registration Centre, and has conducted commercial activity for at least one year.

The transformation of a limited liability company's legal form will not:

• affect any of the company's rights and obligations towards third parties;
• establish or create a new company; or
• place an existing company into liquidation.

Therefore, the company merely changes its legal form without losing its legal identity.

Transformation is subject to approval by the shareholders' general assembly. The resolution is passed only if a qualified majority of three-quarters of the votes of participating shareholders is reached. If the transformation procedure involves changes to shareholders' special rights and obligations, the resolution must be resubmitted for approval by the affected shareholders.

Furthermore, the administrators of the company should prepare a detailed report that explains the legal and economic reasons for the proposed transformation. The report should also outline anticipated difficulties during the assessment period and any adverse effects that the transformation may have on company employees.

During the transformation procedure, the rules which apply to the establishment of a joint stock company must be observed, insofar as they concern shareholders' contributions to the share capital of a joint stock company.

Although this is not expressly provided for by the law, the resolution of the shareholders' general assembly must not be limited to approval of the transformation. It should also include a vote on the essential amendment of the bylaws of the company that is undergoing transformation. Such an amendment is necessary to reflect and regulate the new organisational structure of the transformed company (ie, now a joint stock company).

The shareholders' resolution must be filed and registered with the Albanian Commercial Register, which is kept by the National Registration Centre. Registering the resolution will have the following legal effects:

• The transformed company will continue to exist in the legal form indicated by the respective resolution;
• The shareholders of the transformed company will participate in the share capital of the company in accordance with the formalities required by Law 9901 with regard to the new company form; and
• Third-party rights with regard to the shares of the company will continue to apply to those of the transformed company.

For further information please contact Artila Rama at Boga & Associates by telephone (+355 4225 1050), fax (+355 4225 1055) or email (arama@bogalaw.com).

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