Mergers of Businesses: When Is It an Alternative to a Sale?

Note: This article describes Danish company and tax law specifically for mergers.

Selling a business isn't the only path if you're considering the company's future. A merger is an alternative, where your business doesn't change owner in the traditional sense, but instead merges with another business into one combined entity. It's a fundamentally different process than a sale — legally, tax-wise and in practice.

What's the difference between a merger and a sale?

In an ordinary sale — whether it's an asset purchase or a share purchase — the business changes owner, while it continues as an independent entity under a new owner. In a merger, one or both of the involved companies cease to exist as independent legal entities, and assets, obligations and activities are transferred jointly into one continuing entity. You're not "selling" in the traditional sense — you're combining the business with another.

The two types of merger

• Merger by absorption: One company (the discontinuing company) is absorbed into another, already existing company (the continuing company). This is the most common model when a smaller business is combined with a larger one.
• Merger by formation of a new company (true merger): Two or more companies cease to exist simultaneously, and an entirely new company is formed, taking over everything from the discontinuing companies. Typically used when the parties want to signal that it's a combination of equal parties, rather than one company "acquiring" the other.

How does a merger work in practice?

A merger follows a more formalized process than an ordinary sale:

• Merger plan: The management of the companies involved draws up a joint merger plan describing the terms of the combination, including exchange ratios for ownership shares, if multiple owners are involved.
• Creditor notice: Creditors in the discontinuing companies need to be notified and generally have the right to object, if they assess their claims are at risk.
• Registration with the Danish Business Authority: The merger needs to be filed and registered before it's finally completed.
• Any accountant's statement: Depending on the companies' size and the merger's complexity, there may be a requirement for an independent accountant's statement on the merger plan.

What about tax?

Under certain conditions, a merger can be completed as a tax-free merger under the rules of the Danish Merger Tax Act — meaning the merger doesn't in itself trigger taxation at the time of the merger, but the tax position is carried forward in the continuing company. The conditions for this are technical, and it should always be clarified with an accountant early in the process whether a specific merger can be completed tax-free.

When does a merger make sense over a sale?

• You want to remain part of the continuing business, for example with an ownership stake in the continuing company, instead of exiting entirely.
• Two businesses have complementary strengths — for example different customers, products or geographic markets — where a combination creates more value than a pure sale to a third party.
• You want a solution to a generational transfer or an ownership conflict, where merging with another business can be a more natural path than finding an external buyer.
• Both parties want to share the risk going forward, instead of one party selling out and moving on.

When is an ordinary business sale the better solution?

If you want a clear, final ending — where you receive a fixed purchase price and genuinely exit the business — an ordinary sale is generally the more straightforward solution. A merger is best suited when you genuinely want to continue in some form together with the other business, not when the goal is primarily to "move on".

Frequently asked questions

Does my business cease to exist in a merger?

It depends on the merger type. In a merger by absorption, the absorbed company ceases to exist, while the continuing company lives on. In a merger by formation of a new company, both original companies cease to exist, and an entirely new company is formed.

Can a merger happen without triggering tax?

Yes, under certain conditions a merger can be completed tax-free under the Merger Tax Act. The conditions are technical and should always be clarified with an accountant before proceeding with a specific merger.

Is a merger a faster process than an ordinary sale?

Often the opposite. The requirements for a merger plan, creditor notice and registration make the process more formalized, and it can therefore take longer than an equivalent ordinary deal.

Considering whether a merger or an ordinary sale is the right path for your business? Book a no-obligation call about the Advisory & Mediation package, or read about the significance of company structure when selling.