Split-off a company (demerge) in Ukraine
A company may choose to undergo a demerger in order to transfer some or all of its business activities to another entity. Essentially, a demerger involves a company splitting its current operations into distinct parts, either creating a new independent entity or selling/dissolving the separated unit. The company that is transferring its activities is called the demerged entity, while the receiving company is referred to as the resulting company.
Types of demergers
There are three main options for demerging a company in Ukraine, 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 shareholders of the distributing company as part of the distribution. Another option is for the parent company to directly pay a dividend to its shareholders on the new shares.
Share capital reduction demerger
Another method to divide a business is by decreasing the parent company’s share capital. This involves a corresponding reduction in the capital of the company being transferred, which is then transferred to new shareholders or holding companies owned by those 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 closed down and its assets are moved to new entities in a liquidation demerger, the shareholders of the original company receive shares in the new businesses in exchange for their interests during the winding up process. In cases where shareholders have different opinions on the company’s future and wish to pursue separate paths, a demerger can be seen as a viable option. This strategic decision enables each shareholder to make their own decisions independently.
Benefits of demerging
One of the main reasons corporations choose to demerge is to create more value for shareholders. After a demerger, the newly formed company often issues shares to its shareholders. If the demerger delivers the anticipated benefits, profits and share prices of the two resulting firms will increase. This increase in profits can be attributed to separate management teams taking ownership of their gains and losses without interference from the main board. In addition, the clear accountability of each team for outcomes may lead to a higher motivation to achieve financial targets. Furthermore, splitting up management teams allows CEOs to focus on their specific brand or area of expertise. Demerging also enables each new business to raise capital independently instead of depending on centrally allocated budgets. Another advantage is that in the event of a failed joint venture or acquisition, each partner can cut their losses and continue operating their independent company.
Considerations before demerging a company
To successfully carry out a demerger in Ukraine, it is crucial to carefully assess multiple factors beforehand. This involves examining the company’s assets, debts, and activities, and being familiar with the legal and regulatory obligations. Taking into account the effects on stakeholders like shareholders, employees, clients, and suppliers is also important to minimize any possible issues. In summary, thorough planning and consideration of these aspects are necessary for a smooth demerger process in Ukraine.
Contact us
If you are thinking about a demerger for your business in Ukraine, our team is available to help you through the entire process. With our knowledge in corporate law and business deals, we can offer customized advice to guarantee a seamless and prosperous demerger. Whether you require help with adhering to legal requirements, financial evaluations, or communicating with stakeholders, we are dedicated to aiding you in accomplishing your objectives efficiently. Get in touch with us now to arrange a meeting and discover how we can assist your company through the demerger process.