Split-off a company (demerge) in Hungary
A company might choose to undergo a demerger as a strategic business decision in order to shift certain or all of its business activities to a different entity. In essence, a demerger takes place when a company splits its current operations into distinct parts, forming a new independent entity, or selling/dissolving the separated unit. The company moving its activities is called the demerged entity, while the receiving company is designated as the resulting company.
Types of demergers
There are three main choices for separating a company in Hungary, all of which have their own tax benefits.
Statutory demerger
When a new company is established 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 as part of the exchange. Another option is for the parent company to provide a direct dividend to its shareholders using the new shares.
Share capital reduction demerger
An alternative method to divide a company is by reducing the share capital of the parent company. By simultaneously decreasing the capital of the subsidiary company, a transfer of trading operations is made to new shareholders or holding companies under their control. A capital reduction demerger could prove to 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 liquidated, its assets are divided among new entities in a liquidation demerger. The shareholders of the original company receive shares in the new businesses in exchange for their ownership rights. In cases where shareholders have different opinions on the company’s future and want to go in separate directions, a demerger may be necessary. This strategic decision gives each shareholder the ability to pursue their own path.
Benefits of demerging
One of the main reasons why corporations choose to demerge is to increase value for their shareholders. After a demerger, the newly formed company often gives shares to its shareholders. If the demerger results in the expected benefits, profits and share prices of both companies will increase. This could happen because separate management teams are in charge of their own performance without interference from the main board, leading to greater accountability and motivation to meet financial goals. Additionally, the division of management teams allows CEOs to focus on their specific expertise. Demerging also gives each new business the opportunity to raise its own capital rather than depending on centralized budgets. In cases where a joint venture or acquisition is not successful, each partner can cut their losses and continue running their independent company.
Considerations before demerging a company
In Hungary, it is necessary to conduct a comprehensive assessment of different elements before moving forward with a demerger to guarantee a seamless and effective transition. This involves examining the company’s assets, liabilities, and operations, and grasping the legal and regulatory obligations. It is also important to assess the influence on stakeholders, including shareholders, employees, customers, and suppliers, in order to manage potential risks or interruptions. In conclusion, careful planning and contemplation of these factors are vital for a prosperous demerger process in Hungary.
Contact us
If you are thinking about splitting up your company in Hungary, our team is ready to support you through the entire process. With our knowledge of corporate law and business deals, we can give you personalized advice to make sure the demerger goes smoothly and successfully. Whether you require help with following the law, analyzing finances, or communicating with stakeholders, we are dedicated to helping you reach your objectives efficiently. Get in touch with us now to set up a meeting and discover how we can assist your company in its demerger process.