Split-off a company (demerge) in Portugal
A demerger is a strategic business decision that a company may choose to make in order to transfer some or all of its commercial activities to another entity. This involves dividing the company’s ongoing operations into distinct parts, creating a new independent entity, or selling off/dissolving the divided unit. The company that transfers 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 Portugal, each with its own tax-efficient benefits.
Statutory demerger
When a new company is established and shares are given 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 provides shares in the new company to the shareholders of the parent 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 share capital of the parent company. By simultaneously decreasing the capital of the entity being transferred, a business operation can be moved to new shareholders or holding companies under their control. A capital reduction demerger can be advantageous 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
In a liquidation demerger, a company is dissolved and its assets are transferred to new entities. Shareholders of the original company receive shares in the new businesses in exchange for their ownership rights. If shareholders have differing opinions on the company’s future direction and wish to pursue separate paths, a demerger may be chosen. This allows each shareholder to pursue their own course independently.
Benefits of demerging
One of the primary reasons companies choose to demerge is to increase value for their shareholders. After a demerger, the newly formed company often distributes shares to existing shareholders. If the demerger results in the expected benefits, profits and share prices of both companies typically increase. This may be due in part to separate management teams being accountable for their own performance without interference from the main board. With clearer accountability, there is usually a higher level of motivation to achieve financial targets. Additionally, by dividing management teams, CEOs can focus on their respective areas of expertise. Demerging also allows each new business to raise its own capital rather than depending on centralized budgets. In the case of a joint venture or acquisition that proves unsuccessful, each partner can minimize losses and continue operating their independent companies.
Considerations before demerging a company
In order to have a successful demerger in Portugal, it is important to carefully assess different aspects beforehand. This involves examining the company’s assets, liabilities, and operations, as well as familiarizing oneself with the legal and regulatory obligations. It is also crucial to consider how the demerger will affect stakeholders like shareholders, employees, customers, and suppliers in order to minimize any potential risks or interruptions. Therefore, meticulous planning and consideration of these factors are key to ensuring a smooth demerger process in Portugal.
Contact us
If you are thinking about separating your company in Portugal, our team is available to support you throughout the entire process. With our knowledge in corporate law and business transactions, we can offer customized advice to guarantee a seamless and prosperous demerger. Whether you require help with following legal requirements, conducting financial analysis, 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 aid in your company’s demerger process.