Split-off a company (demerge) in Italy
A company might choose to undergo a demerger as a strategic business decision to move some or all of its business operations to another entity. In essence, a demerger happens when a company splits its continuous operations into distinct parts, establishing a new independent entity, or disposing of/dissolving the divided unit. The company that transfers its operations is called the demerged entity, while the company that receives them is called the resulting company.
Types of demergers
In Italy, there are three main options for demerging a company, and each option has its own tax benefits.
Statutory demerger
When a new company is created and shares are given to the shareholders of the parent company, it is known as a “statutory demerger.” In a “three-cornered” demerger, the parent company transfers the new subsidiary to another company. This other company then gives shares in the new company to the shareholders of the distributing company as part of the distribution. Alternatively, the parent company can also give a direct dividend to its shareholders using the new shares.
Share capital reduction demerger
One alternative method to separate a company is by decreasing the parent company’s share capital. This involves a corresponding decrease in the capital of the company being transferred, with the trading operations being moved to new shareholders or holding companies owned by those shareholders. A reduction of capital demerger can be beneficial 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 and its assets are distributed to new entities in a liquidation demerger, the shareholders of the original company receive shares in the new entities in exchange for their interests during the winding up process. In cases where shareholders disagree on the future direction of the company and wish to follow different paths, a demerger may be necessary. This strategic decision enables each shareholder to pursue their own course independently.
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 newly formed company will often issue shares to the shareholders. If the demerger brings the anticipated benefits, profits and share prices of both resulting companies will increase. This increase in profits may be due to the fact that separate management teams are responsible for their own performance, without interference from the main board. Additionally, with greater clarity on accountability, there is more motivation for teams to achieve financial goals. Moreover, a demerger allows CEOs to focus on their specific brand or expertise. Each new business formed after a demerger can raise its own capital instead of relying on centrally allocated budgets. In the event of a failed joint venture or purchase, the partners can cut their losses and continue running their independent companies.
Considerations before demerging a company
Prior to initiating a demerger in Italy, it is crucial to conduct a comprehensive assessment of multiple factors to guarantee a seamless and prosperous transition. This entails examining the company’s assets, liabilities, and activities, while also comprehending the legal and regulatory obligations implicated. Taking into account the effects on stakeholders, including shareholders, employees, clients, and suppliers, is also vital to minimize any possible hazards or interruptions. In general, careful planning and evaluation of these factors are necessary for a successful demerger procedure in Italy.
Contact us
If you are thinking about splitting up your company in Italy, our team is available to help you through the entire process. With our knowledge of corporate law and business deals, we can offer personalized advice to guarantee a successful demerger. Whether you require help with following the law, analyzing finances, or communicating with stakeholders, we are dedicated to aiding you in reaching your objectives efficiently. Reach out to us now to set up a meeting and see how we can assist your company in its demerger journey.