Split-off a company (demerge) in Bosnia
A company might choose to pursue a demerger as a strategic decision to move certain or all of its business functions to a different organization. In essence, a demerger takes place when a company splits its current operations into distinct sections, leading to the formation of a new independent organization or the sale/dissolution of the separated unit. The organization that is transferring its operations is called the demerged entity, whereas the company that receives these operations is referred to as the resulting company.
Types of demergers
There are three main options for demerging a company in Bosnia, each with distinct tax-efficient benefits.
Statutory demerger
A situation in which a new company is established and shares are distributed to the shareholders of the parent company is known as a “statutory demerger.” A “three-cornered” demerger takes place when the parent company transfers the newly formed subsidiary to a different company. This second company then allocates shares in the new company to the shareholders of the distributing company as part of the distribution. Alternatively, the parent company can opt to provide a direct dividend to its shareholders based on the new shares.
Share capital reduction demerger
Another method to separate a firm is by reducing the share capital of the parent company. Alongside a corresponding decrease in the capital of the transferring company, a business operation is handed over to new shareholders or holding companies that these shareholders manage. A capital reduction 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
A company is dissolved, and its assets are allocated to new entities in a liquidation demerger. The original shareholders of the dissolved company receive shares in the new businesses in return for their rights during the winding up process. When shareholders have differing opinions regarding the company’s future and want to follow distinct directions, a demerger may be an option. This approach enables each member to navigate their own course independently.
Benefits of demerging
One of the primary reasons corporations choose to demerge is to create increased value for shareholders. After a demerger, shares in the newly established company are typically distributed to shareholders. If the deal yields the expected benefits, profits and share prices of both resulting firms are likely to increase. This profit increase may occur partly because separate management teams take ownership of their financial results without interference from the main board. Additionally, clearer accountability for outcomes may enhance motivation for teams to achieve financial goals. Moreover, dividing management teams can allow CEOs to concentrate on their specific brand or area of expertise. A demerger also enables each new business to raise its own capital rather than relying on centralized budgets. An evident advantage in the case of a joint venture or unsuccessful acquisition is that each partner can minimize their losses while continuing to operate their independent company.
Considerations before demerging a company
Prior to moving forward with a demerger in Bosnia, it is critical to conduct a comprehensive assessment of several factors to facilitate a seamless and effective transition. This process involves examining the company’s assets, liabilities, and operations, along with gaining insight into the legal and regulatory obligations that must be met. It is also important to take into account the effects on stakeholders, including shareholders, employees, customers, and suppliers, to reduce any potential risks or disruptions. In summary, careful planning and attention to these factors are vital for a successful demerger process in Bosnia.
Contact us
If you are thinking about a demerger for your business in Bosnia, our team is ready to support you at every stage. With our knowledge in corporate law and business transactions, we can offer personalized advice to facilitate a seamless and successful demerger process. Whether you require help with legal compliance, financial assessments, or communication with stakeholders, we are dedicated to helping you reach your objectives efficiently. Get in touch with us today to set up a consultation and discover the ways we can assist with your company’s demerger journey.