Split-off a company (demerge) in Singapore
The decision to undergo a demerger may be made by a company as part of its strategic business strategy to shift some or all of its business operations to a different entity. Essentially, a demerger happens when a company splits its operations into distinct parts, establishing a new independent entity or disposing of/dissolving the separated unit. The company that is transferring its operations is called the demerged entity, while the company receiving these operations is known as the resulting company.
Types of demergers
There are three main options for demerging a company in Singapore, each with its own tax-efficient benefits.
Statutory demerger
The situation where a new company is created and its shares are distributed to the shareholders of the parent company is known as a “statutory demerger.” In a “three-cornered” demerger, the parent company transfers the new subsidiary to a different company, which then gives 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 provide 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. This involves a corresponding decrease in the capital of the subsidiary company, allowing for the transfer of a business operation to new shareholders or holding companies that are owned by those shareholders. A reduction of capital demerger may provide assistance in this process.
- 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 liquidated, its assets are moved to new entities through a process known as a liquidation demerger. Shareholders of the original company receive shares in the new businesses as part of the winding up process. If shareholders have different opinions on the future of the company and want to go their separate ways, a demerger can be a strategic option. This allows each shareholder to make independent decisions for the future.
Benefits of demerging
One of the primary reasons why corporations choose to demerge is to increase value for their shareholders. After a demerger, the new company’s shares are often distributed to the shareholders. If the demerger results in the expected benefits, profits and share prices of both companies will likely increase. This increase in profits can be attributed to the fact that separate management teams are now responsible for their own performance, without interference from the main board. Additionally, with clear accountability, there is more incentive for the teams to meet their financial targets. Furthermore, dividing management teams allows CEOs to focus on their specific area of expertise. Demerging also enables each new business to raise capital independently rather than depending on centralized budgets. In cases where joint ventures or acquisitions do not work out, each partner can cut their losses and continue operating their own separate companies.
Considerations before demerging a company
A careful examination of different factors is necessary before carrying out a demerger in Singapore in order to guarantee a seamless and effective transition. This involves assessing the company’s assets, liabilities, and operations, as well as familiarizing oneself with the legal and regulatory obligations. It is also important to take into account the effects on stakeholders, including shareholders, employees, customers, and suppliers, in order to minimize possible risks or interruptions. In general, thorough planning and consideration of these factors are crucial for a successful demerger process in Singapore.
Contact us
If you are thinking about carrying out a demerger for your company in Singapore, our team is available to support you throughout the entire process. Utilizing our knowledge in corporate law and business dealings, we can offer customized assistance 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 help your company through the demerger process.