Split-off a company (demerge) in France
An organization might choose to undergo a demerger as a strategic 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, forming a new standalone entity or selling/disbanding the divided section. The company transferring its operations is called the demerged entity, while the receiving company is identified as the resulting company.
Types of demergers
There are three main choices for de-merging a company in France, each with its own tax-advantages.
Statutory demerger
When a new company is created and shares are given 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 newco to the distributing company’s shareholders in exchange for the distribution. Another option is for the parent company to pay a direct dividend to its shareholders on the new shares.
Share capital reduction demerger
One other method of separating a company is by reducing the share capital of the parent company. By also reducing the capital of the company being transferred, a business operation can be moved to new shareholders or holding companies controlled by them. A capital reduction 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
In a liquidation demerger, a company is dissolved and its assets are moved to new entities. The shareholders of the original company receive shares in the new businesses in exchange for their interests during the winding up process. When shareholders disagree on the company’s future direction and wish to pursue different paths, a demerger is a viable option. This strategic decision enables each shareholder to independently determine their course of action.
Benefits of demerging
One of the primary reasons for companies to demerge is to increase value for shareholders. After a demerger, the newly formed company often issues shares to shareholders. If the expected benefits of the deal materialize, profits will increase and the share prices of both resulting companies will also rise. This increase in profits can be attributed to the fact that separate management teams are now solely responsible for the gains and losses of their respective companies without interference from the main board. Additionally, clear accountability for outcomes among the management teams can enhance their motivation to meet financial targets. Furthermore, a demerger allows CEOs to focus on their specific brand or area of expertise. Each new business formed after a demerger can raise its capital independently, rather than relying on centrally assigned budgets. In the event of a failed joint venture or purchase, the advantage of a demerger is that each partner can cut their losses and continue running their own separate company.
Considerations before demerging a company
It is important to thoroughly assess multiple factors before moving forward with a demerger in France to guarantee a successful and seamless transition. This evaluation must involve examining the company’s assets, liabilities, and operations, as well as familiarizing oneself with the legal and regulatory obligations. Additionally, it is imperative to consider the effects on stakeholders, including shareholders, employees, customers, and suppliers, in order to minimize any potential risks or disruptions. Ultimately, careful planning and taking into account these elements are crucial for a prosperous demerger process in France.
Contact us
Our team is available to help you with every aspect of a demerger for your company in France. We have extensive knowledge in corporate law and business transactions, allowing us to offer personalized guidance to ensure a seamless and prosperous demerger process. Whether you require support with adhering to legal regulations, financial evaluation, or communicating with stakeholders, we are dedicated to assisting you in reaching your objectives efficiently. Get in touch with us now to set up a consultation and discover how we can assist your company during the demerger process.