PUERTO RICO Law and Practice Contributed by: Fernando J. Rovira-Rullán and Andrés I. Ferriol Alonso, Ferraiuoli LLC
6.10 Squeeze-Out Mechanisms Local statutes permit a company in a merger to pay any particular equity holders in cash in lieu of equity and therefore be effectively squeezed out. If the pur - chaser holds at least 90% of the equity with voting rights, it may perform a short-form merger, which only requires the approval of the purchaser’s govern - ing body and avoids the requirement for the equity holder’s approval. 6.11 Irrevocable Commitments It is not common to obtain irrevocable commitments from principal shareholders. Usually, the parties enter into a non-binding letter of intent, which does not impose the obligation to close the transaction upon principal shareholders. However, it would include no- shop provisions and/or break-up fees that could be triggered if the seller were to terminate negotiations due to receiving a better offer. Under Puerto Rico law, there are no statutory require - ments for privately held companies to publicly dis - close a bid for the acquisition of another privately held company or to publicly produce and disclose financial statements (generally prepared pursuant to generally accepted accounting principles – GAAP) for an M&A transaction. Notwithstanding, for a merger or consoli - dation transaction to be effective, the merger or con - solidation agreement or a certificate of merger must be filed with the Puerto Rico Department of State. 7.2 Type of Disclosure Required 7. Disclosure 7.1 Making a Bid Public Similarly, there is no statutory requirement to publicly disclose the issue of shares in a business combination transaction. Nevertheless, according to the General Corporations Act, if an acquiring corporation issues common shares exceeding 20% of the amount of common shares outstanding before the effective date of the acquisition or merger, this acquisition or merger will require the approval of the shareholders of the surviving company.
7.3 Producing Financial Statements Given the fact that most M&A transactions are execut - ed among private companies, there are no applicable statutory requirements for the bidders to produce or disclose financial statements to the general public. Financial statements, when prepared, are generally prepared pursuant to GAAP. In larger transactions, buyers often tend to request a quality‑of‑earnings report prepared by an independent accounting firm to validate EBITDA and working‑capital metrics. 7.4 Transaction Documents The General Corporations Act requires that the parties involved in a merger or consolidation transaction file the corresponding merger or consolidation agreement or plan with the Puerto Rico Department of State. The parties may, however, elect to file a certificate contain - ing the following information instead: • whether the transaction is a merger or a consolida - tion; • the names, jurisdictions of incorporation or organi - sation, and the registry numbers of the constituent companies; • certification that the constituent companies have adopted a merger or consolidation agreement pur - suant to the General Corporations Act; • the name of the surviving or resulting company; • a description of the changes or amendments to the articles of incorporation or articles of organisation; • the address of the surviving company where the merger or consolidation agreement is available; and • an assurance that the surviving entity will provide, free of charge, a copy of the agreement to the equity holders.
8. Duties of Directors 8.1 Principal Directors’ Duties
The General Corporations Act is based on the Dela - ware General Corporations Act and, substantially, all theories of corporate doctrine adopted by Delaware courts are considered highly persuasive in Puerto Rico. This includes the fiduciary duties of care and loyalty owed by directors and officers to the corpo - ration and to its shareholders. Accordingly, directors
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