Split-off a company (demerge) in Germany
A demerger can be chosen by a company as a strategic business decision to shift some or all of its business operations to a different entity. In essence, a demerger happens when a company splits its current operations into distinct parts, establishing a new autonomous entity or disposing of/dissolving the separated unit. The company that transfers its operations is called the demerged entity, while the company receiving them is called the resulting company.
Types of demergers
There are three main choices for separating a company in Germany, each with its own tax advantages.
Statutory demerger
A situation where a new company is established and shares are given to the shareholders of the parent company is known as a “statutory demerger.” In a “three-cornered” demerger, the parent company transfers the new subsidiary to another company, which then gives shares in the new company to the shareholders of the distributing company in return for the distribution. Another option is for the parent company to directly pay dividends to its shareholders on the new shares.
Share capital reduction demerger
An alternative method of separating a company is by reducing the parent company’s share capital. This involves decreasing the transferring company’s capital simultaneously, allowing a trading operation to be transferred to new shareholders or holding companies under their control. A demerger through capital reduction can be beneficial.
- When a statutory demerger or liquidation demerger isn’t an option
- There are non-member state parties
- The entities aren’t trading companies
- None of the enterprises in the mix should be liquidated
- You intend to sell some group members or float them
- The distributing firm does not have sufficient distributable reserves
Liquidation demerger
When a company is dissolved and its assets are moved to new entities in a liquidation demerger, the existing shareholders of the dissolved corporation receive shares in the new companies in exchange for their claims during the winding up process. In cases where shareholders have differing opinions on the company’s future and want to pursue different paths, a demerger can be an option. This strategic decision enables each shareholder to choose their own direction independently.
Benefits of demerging
One of the primary reasons why corporations choose to demerge is to increase shareholder value. After a demerger, the newly created company typically issues shares to existing shareholders, with the aim of raising profits and boosting the share prices of both resulting firms. This can be achieved by allowing separate management teams to take control of their own successes and failures, leading to a clearer understanding of accountability and increased motivation to reach financial goals. Additionally, dividing management teams allows CEOs to focus on their specific expertise or brand. Another advantage of a demerger is that new businesses can raise capital independently rather than relying on centralized budgets. Furthermore, in situations where a joint venture or acquisition is not successful, each partner is able to minimize losses and continue operating their own separate company.
Considerations before demerging a company
A comprehensive assessment of different factors is crucial before carrying out a demerger in Germany to guarantee a successful and seamless transition. This involves scrutinizing the company’s assets, liabilities, and operations, as well as familiarizing oneself with the legal and regulatory obligations. It is also important to take into account the interests of stakeholders, including shareholders, employees, customers, and suppliers, in order to minimize any possible risks or disturbances. In conclusion, careful planning and careful consideration of these aspects are vital for a successful demerger procedure in Germany.
Contact us
If you are thinking about splitting up your company in Germany, our team will support you throughout the entire process. With our knowledge of corporate law and business deals, we will offer personalized advice to make sure the demerger goes smoothly and successfully. Whether you require help with following legal rules, analyzing finances, or communicating with stakeholders, we are determined to help you reach your objectives efficiently. Get in touch with us now to arrange a meeting and see how we can assist your company through the demerger process.