Split-off a company (demerge) in Azerbaijan
One strategic business decision a company can make is to undergo a demerger, transferring some or all of its commercial activities to another entity. This process involves dividing the ongoing operations of the company into separate parts, either creating a new independent entity or selling off/dissolving the divided unit. The company transferring its activities is called the demerged entity, while the recipient company is referred to as the resulting company.
Types of demergers
There are three main choices for separating a company in Azerbaijan, each with its own tax advantages.
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 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 pay a dividend directly to its shareholders on the new shares.
Share capital reduction demerger
Another method of dividing a company is by reducing the parent company’s share capital and simultaneously decreasing the transferring company’s capital, which allows for a trading operation to be transferred to new shareholders or holding companies controlled by those shareholders. This reduction of capital demerger can 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 divided among new entities in a liquidation demerger, the current shareholders of the disbanded company receive shares in the new companies as compensation for their rights in the winding up process. If shareholders have different opinions on the future direction of the company and want to pursue separate paths, a demerger may be a viable option. This strategic decision enables each shareholder to independently determine their own course.
Benefits of demerging
One of the primary reasons why corporations choose to demerge is to increase value for their shareholders. After a demerger, the newly formed company typically issues shares to its shareholders. If the demerger results in the expected advantages, profits and share prices for both resulting firms are likely to increase. This could be because separate management teams are responsible for their own gains and losses, without interference from the main board. With clear accountability for outcomes, the management teams may be more motivated to achieve financial targets. Additionally, dividing the management teams allows CEOs to focus on their specific areas of expertise. By demerging, each new business can raise its capital instead of depending on centrally allocated budgets. A key advantage of a demerger is that in case of a failed joint venture or purchase, each partner can limit their losses and continue running their own independent company.
Considerations before demerging a company
In order to successfully carry out a demerger in Azerbaijan, it is vital to carefully examine a range of factors to guarantee a seamless transition. This involves assessing the company’s assets, liabilities, and activities, as well as comprehending the legal and regulatory obligations. It is also important to consider the effects on stakeholders, including shareholders, employees, customers, and suppliers, in order to minimize any possible risks or interruptions. Ultimately, meticulous planning and taking these factors into account are crucial for a successful demerger in Azerbaijan.
Contact us
If your company in Azerbaijan is thinking about a demerger, our team is available to help you throughout the process. We specialize in corporate law and business transactions and can offer personalized guidance to make sure the demerger is successful. Whether you require help with legal compliance, financial analysis, or communicating with stakeholders, we are dedicated to assisting you in reaching your objectives efficiently. Get in touch with us today to arrange a consultation and discover how we can assist your company through the demerger process.