Split-off a company (demerge) in United Arab Emirates
A company might choose to undergo a demerger as a strategic business decision in order to shift some or all of its business operations to another entity. In essence, a demerger occurs when a company splits its current operations into distinct parts, forming a new independent entity, or selling off/dissolving the separated unit. The company transferring its operations is called the demerged entity, while the company receiving them is named the resulting company.
Types of demergers
There are three main choices for demerging a company in the United Arab Emirates, each providing its own tax-efficient benefits.
Statutory demerger
When a new company is created and its shares are given 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 another company, which then issues shares in the new company to the shareholders of the distributing company in return for the distribution. Another option is for the parent company to directly pay dividends to its shareholders on the new shares.
Share capital reduction demerger
One option for dividing a company is by reducing the parent company’s share capital. This would involve decreasing the capital of the company being transferred, allowing a trading operation to be moved to new shareholders or holding companies that are owned by those shareholders. A demerger involving a reduction of capital could be beneficial.
- 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 entities in a demerger process, the shareholders of the original company receive shares in the new companies instead of their ownership rights. 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
One of the main reasons why corporations choose to demerge is to increase the value for shareholders. After a demerger, the newly formed company often issues shares to the shareholders. If the demerger delivers the expected benefits, both resulting companies will see a rise in profits and share prices. This increase in profits can be attributed to separate management teams taking charge of their own successes and failures without interference from the main board. The clear delineation of responsibilities within each team may lead to a greater drive to meet financial goals. Additionally, splitting management teams allows CEOs to focus on their specific expertise. Demerging enables each new business to raise its own capital rather than relying on centrally allocated funds. In the event of a failed joint venture or acquisition, both partners can cut their losses and continue to operate their respective independent companies.
Considerations before demerging a company
In order to successfully execute a demerger in the United Arab Emirates, it is important to carefully assess a range of factors to ensure a seamless transition. This involves examining the company’s assets, liabilities, and operations, as well as familiarizing oneself with the legal and regulatory obligations. Additionally, taking into account the interests of stakeholders such as shareholders, employees, customers, and suppliers is vital in order to minimize any potential risks or disturbances. In conclusion, thorough planning and consideration of these factors are crucial for a successful demerger in the United Arab Emirates.
Contact us
If you are thinking about a demerger for your company in the United Arab Emirates, our team is available to support you throughout the entire process. Leveraging our knowledge of corporate law and business dealings, we can offer personalized guidance to facilitate a seamless and prosperous demerger. Whether you require help with meeting legal requirements, conducting financial assessments, 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 assist your company during the demerger process.