Split-off a company (demerge) in Lithuania
A company may choose to undergo a demerger as a strategic business decision in order to shift some or all of its business operations to another entity. Essentially, a demerger takes place when a company splits its ongoing operations into distinct parts, forming a new independent entity, or selling off/disbanding the split unit. The company transferring its operations is called the demerged entity, while the receiving company is called the resulting company.
Types of demergers
There are three main choices for splitting a company in Lithuania, each providing unique tax benefits.
Statutory demerger
The formation of a new company and the 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 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
One alternative method to separate a company is by reducing the parent company’s share capital, while simultaneously decreasing the transferring company’s capital. This allows for a trading operation to be transferred to new shareholders or holding companies under their control. A demerger through 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, its assets are passed on to new entities in a demerger process. Shareholders of the original company receive shares in the new companies as part of the winding-up process. If shareholders have different opinions on the company’s future and want to go in separate directions, a demerger may be a viable option. This decision enables each shareholder to pursue their own path independently.
Benefits of demerging
One of the primary reasons why companies choose to demerge is to increase shareholder value. After a demerger, shareholders often receive shares in the newly created company. If the demerger results in the expected benefits, profits and share prices of both companies will typically increase. This increase in profits can be attributed in part to the fact that separate management teams are now responsible for their own performance, without interference from the main board. Additionally, with clearer lines of accountability, there is a stronger incentive for teams to meet financial targets. By dividing management teams, CEOs are able to focus on their specific areas of expertise. Demergers also allow each new business to raise capital independently instead of relying on centralized budgets. Another advantage is that in the case of a joint venture or acquisition that is not successful, each partner is able to limit their losses and continue operating their own separate companies.
Considerations before demerging a company
Prior to moving forward with a demerger in Lithuania, it is crucial to conduct a comprehensive assessment of different factors to guarantee a seamless and effective transition. This involves examining the company’s assets, liabilities, and activities, while also grasping the legal and regulatory obligations at play. Taking into account the consequences for stakeholders like shareholders, employees, customers, and suppliers is also vital to minimize any possible risks or interruptions. In summary, careful planning and attention to these factors are necessary for a prosperous demerger process in Lithuania.
Contact us
If you are thinking about implementing a demerger for your company in Lithuania, our team is available to support you throughout the entire process. With our knowledge of corporate law and business deals, we are able to offer customized advice to guarantee a seamless and prosperous demerger procedure. Whether you require help with following legal regulations, conducting financial evaluations, 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 its demerger process.