Split-off a company (demerge) in Romania
A company might choose to undergo a demerger as a strategic business decision to move some or all of its commercial activities to another entity. In essence, a demerger happens when a company splits its current operations into distinct parts, establishing a new independent entity or disposing of/dissolving the separated unit. The company transferring its activities is called the demerged entity, while the receiving company is referred to as the resulting company.
Types of demergers
In Romania, there are three main options for demerging a company, each with its own tax advantages.
Statutory demerger
When a new company is established and shares are distributed 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 in return for the distribution. Another option is for the parent company to give a direct dividend to its shareholders for the new shares.
Share capital reduction demerger
One alternative method to separate a company is by reducing the share capital of the parent company. This involves decreasing the capital of the subsidiary company while transferring its operations to new shareholders or holding companies affiliated with those shareholders. A demerger through capital reduction can offer advantages:
- 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 liquidation demerger, the former shareholders receive shares in the new companies in exchange for their stake in the winding up process. In cases where shareholders disagree on the future of the company and wish to pursue different paths, a demerger may be a suitable option. This strategic decision enables each shareholder to pursue their own direction independently.
Benefits of demerging
One of the primary 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, with the expectation that profits will increase and the share prices of both resulting firms will go up. This is because separate management teams will be in charge of their own performance without interference from the main board, leading to a clearer accountability for outcomes and potentially greater motivation to meet financial targets. Additionally, demerging allows CEOs to concentrate on their specific area of expertise, and each new business can raise its own capital instead of relying on centrally assigned budgets. Furthermore, in case of a joint venture or acquisition that doesn’t succeed, both partners have the ability to cut their losses and continue to operate independently.
Considerations before demerging a company
It is important to thoroughly assess different factors before carrying out a demerger in Romania in order to guarantee a successful and seamless transition. This includes evaluating the company’s assets, liabilities, and operations, as well as understanding the legal and regulatory aspects. Taking into account the impact on stakeholders, such as shareholders, employees, customers, and suppliers, is also necessary to minimize risks or disruptions. In conclusion, careful planning and consideration of these factors are crucial for a successful demerger process in Romania.
Contact us
If you are thinking about separating your company in Romania, our team is available to help you through the entire process. Our knowledge of corporate law and business deals allows us to offer personalized advice to guarantee a seamless and effective 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 set up a meeting and discover how we can assist your company through the demerger process.