Split-off a company (demerge) in Russia
A demerger can be chosen by a company as a strategic action to move some or all of its business activities to a different entity. Essentially, a demerger happens when a company splits its current operations into distinct parts, forming a new independent entity, or selling off/dissolving the separated unit. The company transferring its activities is called the demerged entity, while the receiving company is termed the resulting company
Types of demergers
There are three main choices for splitting a company in Russia, each with its own tax 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.” In a “three-cornered” demerger, the parent company transfers the new subsidiary to another company, which then issues shares 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 alternative method to separate a company is by decreasing the parent company’s share capital, along with a corresponding reduction in the transferring company’s capital. This allows for the transfer of a business operation to new shareholders or holding companies that are owned by those shareholders. A reduction of capital demerger can provide benefits in this scenario.
- 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, its assets are distributed to new entities through 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 conflicting opinions on the company’s future direction and wish to pursue different paths, a demerger may be contemplated. This strategic decision enables each shareholder to individually determine their own path forward.
Benefits of demerging
One of the main reasons why corporations choose to demerge is to create more value for their shareholders. After a demerger, the new company often issues shares to the current shareholders. If the demerger results in the expected benefits, profits and share prices of both resulting companies could increase. This could be due to the fact that separate management teams will be solely responsible for their own performance without interference from the main board. With clearer accountability, management teams may be more motivated to achieve financial goals. Additionally, dividing management teams allows CEOs to focus on their specific areas of expertise. Demerging also allows each new business to raise its own capital instead of depending on centrally assigned budgets. If a joint venture or acquisition does not go as planned, each partner can cut their losses and continue running their own independent company.
Considerations before demerging a company
A comprehensive assessment of multiple factors is necessary before initiating a demerger in Russia to guarantee a seamless and prosperous transition. This involves assessing the company’s assets, debts, and activities, along with comprehending the legal and regulatory demands. Deliberately considering the effect on stakeholders, like shareholders, employees, clients, and vendors, is also vital to minimize possible risks or interruptions. All in all, careful planning and consideration of these factors are crucial for a successful demerger procedure in Russia.
Contact us
If you are thinking about splitting up your company in Russia, our team is available to support you throughout the entire process. We have extensive knowledge in corporate law and business deals, allowing us to offer personalized advice to guarantee a seamless and prosperous demerger. Whether you require help with following legal regulations, analyzing finances, or communicating with stakeholders, we are dedicated to assisting you in reaching your objectives efficiently. Get in touch with us now to arrange a meeting and discover how we can aid your company’s demerger process.