Split-off a company (demerge) in Cyprus
A company may choose to undergo a demerger in order to shift some or all of its business operations to a different entity as a strategic move. In essence, a demerger involves dividing a company’s current operations into distinct parts, which can result in the creation of a new independent entity or the sale/dissolution of the separated unit. 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 Cyprus, each providing its own tax-efficient benefits.
Statutory demerger
When a new company is established and shares are given to the parent company’s shareholders, it is known as a “statutory demerger.” A “three-cornered” demerger happens when the parent company transfers the new subsidiary to a different company, which then gives shares in the new company to the shareholders of the parent 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
One alternative method to divide a company is by reducing the share capital of the parent company. This involves lowering the capital of the transferring company as well, allowing for a trading operation to be moved to new shareholders or holding companies controlled by these shareholders. 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 dissolved and its assets are divided among new entities in a demerger, the original shareholders of the dissolved corporation receive shares in the new companies in exchange for their interests during the closing process. In cases where shareholders have different opinions on the company’s future and want to pursue different directions, a demerger is an option. This strategic decision enables each shareholder to individually determine their path.
Benefits of demerging
One of the primary reasons why corporations choose to demerge is to increase shareholder value. After a demerger, shareholders often receive shares in the newly formed company. If the demerger produces the expected benefits, profits and share prices of both resulting companies will likely increase. Separate management teams taking responsibility for their own gains and losses without interference from the main board can contribute to this profit growth. Additionally, the increased clarity on each team’s accountability for outcomes can lead to greater motivation to achieve financial targets. Furthermore, splitting management teams can help CEOs focus on their specific brand or area of expertise. Demerging also allows each new business to raise capital independently instead of relying on centrally allocated budgets. In unsuccessful joint ventures or acquisitions, partners can cut their losses and continue running their own independent companies.
Considerations before demerging a company
In order to successfully carry out a demerger in Cyprus, it is important to carefully assess a range of factors. This involves examining the company’s assets, debts, and activities, as well as grasping the legal and regulatory obligations. It is also vital to think about how the demerger will affect stakeholders like shareholders, employees, customers, and suppliers, in order to minimize any possible risks or disturbances. Ultimately, thorough planning and consideration of these aspects are crucial for ensuring a smooth demerger process in Cyprus.
Contact us
If you are thinking about undergoing a demerger in Cyprus for your company, our team is available to help you throughout the entire process. We have the necessary skills in corporate law and business dealings to offer personalized advice to make sure the demerger goes smoothly and is successful. Whether you require help with following 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 meeting and discover how we can aid in your company’s demerger process.