Split-off a company (demerge) in Estonia
A company may choose to undergo a demerger as a strategic decision to shift some or all of its business operations 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 disposing of/dissolving the separated unit. The company that transfers its operations is called the demerged entity, while the company receiving the operations is called the resulting company.
Types of demergers
There are three main choices for demerging a company in Estonia, each providing unique tax benefits.
Statutory demerger
An event in which a new company is established and its shares are given to the parent company’s shareholders 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 return for the distribution. Alternatively, the parent company can give a direct dividend to its shareholders based on the new shares.
Share capital reduction demerger
An alternative method of dividing a company is to decrease the parent company’s share capital. This involves reducing the transferring company’s capital as well, allowing for the transfer of a trading operation to new shareholders or holding companies under their control. A reduction of capital demerger can be advantageous 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
In a liquidation demerger, a company is dissolved and its assets are distributed to newly-formed entities. Shareholders of the original company receive shares in the new businesses as part of the winding up process. When shareholders have different opinions on the company’s future and wish to pursue separate paths, a demerger may be appropriate. This strategic decision enables each shareholder to pursue their own direction independently.
Benefits of demerging
One of the main reasons why corporations choose to demerge is to increase value for their shareholders. After a demerger, the newly formed company often distributes shares to its shareholders. If the demerger produces the anticipated benefits, profits and share prices for both resulting firms will increase. One factor contributing to this increase in profits is that separate management teams are now accountable for their own successes and failures without interference from the main board. With clearer lines of accountability, there is a stronger incentive for teams to achieve financial goals. Additionally, having division in management teams allows CEOs to focus on their specific areas of expertise. This separation also enables each new business to raise capital independently rather than relying on centralized funds. In the event of a failed joint venture or acquisition, each partner can cut their losses and continue running their own separate company.
Considerations before demerging a company
It is crucial to thoroughly assess a variety of factors before moving forward with a demerger in Estonia to guarantee a seamless and prosperous transition. This involves examining the company’s assets, liabilities, and operations, as well as comprehending the legal and regulatory obligations. Additionally, it is important to consider the effect on stakeholders, including shareholders, employees, customers, and suppliers, in order to minimize possible risks or interruptions. In essence, careful planning and consideration of these factors are necessary for a successful demerger process in Estonia.
Contact us
If you are thinking about separating your company in Estonia, our team is available to help you through each stage. We specialize in corporate law and business deals, so we can offer customized advice to make sure the demerger goes smoothly and successfully. Whether you need help with following the law, analyzing finances, or communicating with stakeholders, we are dedicated to helping you reach your goals efficiently. Reach out to us now to set up a meeting and see how we can assist with your company’s demerger process.