Split-off a company (demerge) in Bulgaria
A demerger can be chosen by a company as a strategic business decision to move some or all of its commercial operations to another entity. In essence, a demerger happens when a company splits its ongoing operations into distinct parts, forming a new independent entity, or selling/dissolving the separated unit. The company transferring its operations 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 Bulgaria, each coming with its own tax benefits.
Statutory demerger
The creation of a new company and distribution of shares 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 issues shares to the distributing company’s shareholders 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
One more method to separate a business is by reducing the parent company’s share capital. This involves lowering the transferring company’s capital as well, and then transferring 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
When a company is dissolved, its assets are moved to new entities through a liquidation demerger. Shareholders of the original company receive shares in the new entities instead of their previous rights during the winding up process. If shareholders have conflicting opinions on the company’s future direction and wish to pursue different paths, a demerger may be a viable option. This strategic decision enables each shareholder to plan their own course of action.
Benefits of demerging
One of the primary reasons 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 leads to the expected benefits, profits and share prices for both resulting companies are likely to increase. This increase in profits can be attributed to the fact that separate management teams are now in charge of their own gains and losses without interference from the main board. In addition, the clearer accountability for outcomes among the teams may boost their motivation to achieve financial targets. Moreover, splitting the management teams allows CEOs to concentrate on their specific brands or areas of expertise. Demergers also enable new businesses to raise capital independently instead of relying on centrally allocated budgets. Another advantage of demerging is that if a joint venture or acquisition does not yield the desired results, each partner can minimize their losses and continue operating their individual companies.
Considerations before demerging a company
Before moving forward with a demerger in Bulgaria, it is important to conduct a comprehensive assessment of different factors to guarantee a seamless and successful transition. This involves examining the company’s assets, debts, and activities, as well as grasping the legal and regulatory obligations at hand. Taking into account the consequences for stakeholders, including shareholders, staff, customers, and vendors, is also vital in order to prevent possible risks or interruptions. In general, careful planning and reflection on these elements are crucial for a prosperous demerger process in Bulgaria.
Contact us
We are available to support you during every stage of a demerger process for your company in Bulgaria. Our team specializes in corporate law and business transactions, offering personalized guidance to make sure the demerger goes smoothly and successfully. Whether you require help with following legal requirements, conducting financial evaluations, or communicating with stakeholders, we are dedicated to helping you reach your objectives efficiently. Get in touch with us now to arrange a meeting and discuss how we can assist with your company’s demerger.