Split-off a company (demerge) in Georgia
A demerger can be chosen by a company as a strategic step to shift some or all of its commercial operations to another entity. In essence, a demerger takes place when a company splits its current operations into distinct parts, establishing a new independent entity, or selling off/dissolving the divided segment. The company transferring its operations is called the demerged entity, while the receiving company is referred to as the resulting company.
Types of demergers
There are three main choices for demerging a company in Georgia, each with its own tax benefits.
Statutory demerger
A situation in which 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 exchange for the distribution. Alternatively, the parent company may give a direct dividend to its shareholders on the new shares.
Share capital reduction demerger
An alternative method to separate a company is by reducing the parent company’s share capital. This involves decreasing the transferring company’s capital as well, and then transferring a trading operation to new shareholders or holding companies controlled by them. A reduction of capital demerger could be advantageous in this scenario.
- 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
In a liquidation demerger, a company is shut down and its assets are divided among new entities. Shareholders of the old company receive shares in the new companies as part of the process. When shareholders have different visions for the company’s future and wish to pursue different paths, a demerger may be initiated. This strategic decision enables each shareholder to pursue their own direction.
Benefits of demerging
One of the primary reasons why corporations choose to demerge is to increase shareholder value. After a demerger, the newly formed company often issues shares to its shareholders. If the demerger results in the expected benefits, profits and share prices of the two resulting firms will increase. An increase in profits may be due to separate management teams taking on individual responsibility for their successes and failures without interference from the main board. Additionally, with clearer accountability for outcomes, there may be a greater incentive for teams to achieve financial goals. Furthermore, dividing management teams allows CEOs to concentrate on their specific brand or area of expertise. By demerging, each new business can raise its own capital instead of depending on centrally allocated budgets. In the event of a JV or acquisition not meeting expectations, each partner can cut their losses and continue to operate their own independent company.
Considerations before demerging a company
Prior to initiating a demerger in Georgia, it is imperative to conduct a comprehensive assessment of multiple factors to guarantee a seamless and prosperous transition. This entails evaluating the company’s assets, liabilities, and activities, as well as comprehending the legal and regulatory obligations at play. Factoring in the effects on stakeholders, such as shareholders, employees, customers, and suppliers, is also essential to minimize potential risks or disturbances. In general, careful planning and contemplation of these factors are indispensable for a successful demerger process in Georgia.
Contact us
If you are thinking of doing a demerger for your company in Georgia, our team is available to help you at every stage of the process. We have a deep understanding of corporate law and business deals, allowing us to offer personalized advice to make the demerger process go smoothly and successfully. Whether you require help with legal requirements, financial evaluations, or communicating with stakeholders, we are dedicated to assisting you in reaching your objectives efficiently. Reach out to us today to set up a meeting and see how we can back your company through its demerger process.