Split-off a company (demerge) in Luxembourg
A demerger is chosen by a company as a strategic decision to move some or all of its business activities to another entity. This process involves dividing the company’s operations into separate parts to create a new independent entity or selling/dissolving the divided unit. The company moving its activities is called the demerged entity, while the company receiving the activities is called the resulting company.
Types of demergers
There are three main choices for demerging a company in Luxembourg, each providing its own tax-efficient 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 provide a direct dividend to its shareholders on the new shares.
Share capital reduction demerger
A different method to separate a company is by reducing the parent company’s share capital. By also decreasing the transferring company’s capital in tandem, a business activity is moved to new shareholders or holding companies under their control. 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 closed and its assets are moved to new entities. Shareholders of the original company receive shares in the new businesses instead of their rights. If shareholders disagree on the company’s future and want to go in different directions, a demerger can be an option to allow each shareholder to pursue their own path independently.
Benefits of demerging
One of the main reasons why corporations choose to demerge is to increase value for their shareholders. After a demerger, the newly created company typically issues shares to its shareholders. If the demerger leads to the expected benefits, both resulting firms should experience a rise in profits and share prices. The profits may increase because separate management teams are now accountable for their own results, without interference from the main board. This clarity in accountability can motivate the teams to achieve financial targets. Additionally, splitting up management teams allows CEOs to focus on their specific areas of expertise. Demerging also gives each new business the opportunity to raise capital independently, rather than relying on a centralized budget. 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
In order to successfully carry out a demerger in Luxembourg, it is necessary to conduct a comprehensive assessment of different elements. This involves examining the company’s assets, liabilities, and activities, as well as being familiar with the legal and regulatory obligations. It is also important to take into account the effects on stakeholders, such as shareholders, employees, customers, and suppliers, in order to minimize possible risks or interruptions. In conclusion, careful planning and attention to these aspects are crucial for a smooth demerger process in Luxembourg.
Contact us
If you are thinking about demerging your company in Luxembourg, our team will support you throughout the entire process. We have knowledge in corporate law and business dealings, allowing us to give personalized advice to guarantee a successful demerger. Whether you require help with following legal regulations, financial assessments, or communicating with stakeholders, we are dedicated to assisting you in reaching your objectives efficiently. Reach out to us now to arrange a meeting and discover how we can assist your company through the demerger process.