Split-off a company (demerge) in Switzerland
A demerger is chosen by a company as a strategic business decision to move some or all of its commercial activities to another entity. Essentially, a demerger happens when a company splits its ongoing operations into separate parts, establishing 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 referred to as the resulting company.
Types of demergers
There are three main choices for separating a company in Switzerland, each providing its own tax-efficient benefits.
Statutory demerger
When a new company is created and its shares are distributed 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 a different company, which then gives shares in the new company to the shareholders of the distributing company in exchange for the distribution. Another option is for the parent company to give a direct dividend to its shareholders on the new shares.
Share capital reduction demerger
Another method of dividing a company is by reducing the parent company’s share capital. By also reducing the transferring company’s capital, a trading operation can be transferred to new shareholders or holding companies owned by those shareholders. This type of demerger involving a reduction in capital can be useful.
- 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 companies in a liquidation demerger, the existing shareholders receive shares in the new entities in exchange for their former ownership rights. If shareholders have different visions for the company’s future and wish to go separate ways, a demerger may be a viable option. This tactic enables each shareholder to pursue their own path independently.
Benefits of demerging
One of the primary reasons why corporations choose to demerge is to increase value for their shareholders. After the demerger, the new company often issues shares to its shareholders. If the demerger is successful and brings the expected advantages, profits will increase and the share prices of both resulting firms will go up. This could be due to the fact that separate management teams take on responsibility for their own performance without interference from the main board. Moreover, with clearer definitions of accountability, there may be a stronger drive for meeting financial goals. Additionally, splitting management teams allows CEOs to focus on their specific areas of expertise. Demerging also allows each new business to raise its own capital rather than depending on centralized budgets. An added advantage is that in the case of a failed joint venture or acquisition, each partner can cut their losses and continue to operate their independent companies.
Considerations before demerging a company
In order to successfully carry out a demerger in Switzerland, it is important to carefully evaluate several factors to ensure a seamless transition. This evaluation should include examining the company’s assets, liabilities, and operations, as well as understanding the legal and regulatory obligations. It is also essential to consider the impact on stakeholders, such as shareholders, employees, customers, and suppliers, in order to minimize possible risks or disruptions. Ultimately, thorough planning and consideration of these factors are key to a successful demerger process in Switzerland.
Contact us
If you are thinking about a demerger for your Swiss company, our team is available to help you through the entire process. With our knowledge of corporate law and business transactions, we can offer personalized advice to make sure the demerger goes smoothly and successfully. 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 aid your company in its demerger process.