Split-off a company (demerge) in Spain
A company might choose to demerge as a strategic business decision to move some or all of its business activities to another entity. In essence, a demerger happens when a company splits its current operations into separate parts, establishing a new independent entity, or selling/dissolving the separated unit. The company moving its activities is called the demerged entity, while the receiving company is referred to as the resulting company.
Types of demergers
In Spain, there are three main choices for separating a company, each providing its own tax-efficient benefits.
Statutory demerger
When a new company is established and shares are distributed to the parent company’s shareholders, it 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 parent company in exchange for the distribution. Another option is for the parent company to give a direct dividend to its shareholders on the new shares.
Share capital reduction demerger
A different method of dividing a company involves reducing the parent company’s share capital. This includes decreasing the capital of the transferring company, which can then be transferred to new shareholders or holding companies controlled by them. A reduction of capital demerger can be beneficial in this situation.
- 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 liquidated, its assets are transferred to new entities in a demerger process. The shareholders of the original company receive shares in the new entities as compensation for their rights during the liquidation. In cases where shareholders have different opinions on the company’s future and want to pursue different paths, a demerger is a viable option. This strategic decision enables each shareholder to go their own way.
Benefits of demerging
One of the main reasons why companies choose to demerge is to increase value for shareholders. After the demerger, the newly formed company typically issues shares to its shareholders. If the demerger results in the expected benefits, profits and share prices of both companies will likely increase. This is often due to separate management teams taking control of their own gains and losses independently. Additionally, having clear accountability for outcomes can improve motivation to achieve financial targets. Furthermore, dividing management teams can allow CEOs to focus on their specific areas of expertise. Demerging also allows each new business to raise its own capital instead of relying on central budgets. Another advantage of a demerger is that in case of a failed joint venture or acquisition, each partner can cut their losses and continue running their own separate company.
Considerations before demerging a company
For a demerger to be successful in Spain, it is necessary to carefully assess several factors to guarantee a seamless transition. This involves examining the company’s assets, debts, and activities, as well as comprehending the legal and regulatory obligations. It is also important to take into account the interests of stakeholders, including shareholders, employees, clients, and suppliers, in order to minimize any possible risks or interruptions. In general, thorough planning and reflection on these factors are crucial for a successful demerger procedure in Spain.
Contact us
If you are thinking about implementing a demerger for your company in Spain, our team is available to help you through the entire process. We specialize in corporate law and business transactions, and can offer personalized advice to ensure a seamless and prosperous demerger. Whether you require support with adhering to legal requirements, conducting financial analysis, or communicating with stakeholders, we are dedicated to aiding you in achieving your objectives. Get in touch with us now to arrange a meeting and discover how we can assist with your company’s demerger procedure.