Split-off a company (demerge) in Serbia
A company might choose to undergo a demerger as a strategic decision to move some or all of its business activities to another entity. In essence, a demerger takes place when a company splits its current operations into distinct parts, forming a new independent entity, or selling/dissolving the separated unit. The company transferring its activities is called the demerged entity, while the company receiving those activities is referred to as the resulting company.
Types of demergers
There are three main choices for separating a company in Serbia, each with its own tax benefits.
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 new company to the shareholders of the distributing company 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
A different method to divide a company is by reducing the parent company’s share capital. This reduction is accompanied by a decrease in the transferring company’s capital, allowing a trading operation to be transferred to new shareholders or holding companies that are controlled by those shareholders. A reduction of capital demerger could 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 distributed to different entities in a liquidation demerger, the shareholders of the original company receive shares in the new companies instead of their rights in the winding up process. In cases where shareholders disagree on the company’s future and wish to go in different directions, a demerger can be a viable option. This strategic decision enables each shareholder to pursue their own path independently.
Benefits of demerging
Dismantling companies can be driven by the desire to enhance shareholder value. One of the key reasons for this is that after a demerger, the newly created company typically distributes shares to its shareholders. If the demerger delivers the expected benefits, profits and share prices of both resulting firms could increase. This increase in profits may be attributed in part to each separate management team being responsible for their own gains and losses without interference from the main board. Additionally, clearer accountability for outcomes may lead to a stronger drive to achieve financial goals. Furthermore, dividing management teams could allow CEOs to concentrate on their specific areas of expertise or brands. By separating, each entity is able to raise its own funds instead of relying on centrally allocated budgets. An advantage of demerging is that in the case of a failed joint venture or acquisition, each partner can limit their losses and continue to operate independently.
Considerations before demerging a company
In order to successfully carry out a demerger in Serbia, it is important to carefully assess a range of factors. This involves examining the company’s assets, liabilities, and operations, as well as familiarizing oneself with the legal and regulatory obligations. Additionally, it is crucial to take into account the impact on stakeholders, such as shareholders, employees, customers, and suppliers, in order to minimize potential risks or disruptions. In conclusion, thorough planning and careful consideration of these factors are vital for a smooth demerger process in Serbia.
Contact us
If you are thinking about separating your company in Serbia, we are here to help you through the whole process. With our knowledge in corporate law and business deals, we can offer personalized advice to guarantee a seamless and prosperous separation process. Whether you require help with following legal regulations, financial evaluation, or communicating with stakeholders, we are dedicated to aiding you in reaching your objectives efficiently. Get in touch with us now to arrange a meeting and discover how we can back your company during the separation process.