Split-off a company (demerge) in Taiwan
One option for a company as a strategic business move is to undergo a demerger, where it transfers some or all of its commercial activities to another entity. In essence, a demerger involves dividing a company’s ongoing operations into separate parts to create 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 demerging a company in Taiwan, and each option provides its own tax advantages.
Statutory demerger
When a new company is created and shares are given to the parent company’s shareholders, it is known as a “statutory demerger.” In a “three-cornered” demerger, the parent company transfers the new subsidiary to another 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 directly pay a dividend to its shareholders on the new shares.
Share capital reduction demerger
An alternative method for separating a company is by reducing the parent company’s share capital. This involves transferring a trading operation to new shareholders or holding companies owned by those shareholders, along with a corresponding decrease in the transferring company’s capital. The demerger through a capital reduction 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 goes through a liquidation demerger, where its assets are transferred to new entities during the winding up process. Shareholders of the original company receive shares in the new businesses in exchange for their rights. In cases where shareholders have different visions for the company’s future and want to go their own ways, a demerger is a potential option. This strategic decision enables each shareholder to pursue their own path independently.
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 typically issues shares to the shareholders. If the demerger is successful and produces the expected benefits, profits and share prices for both resulting firms will likely increase. This increase in profits may be attributed to the fact that separate management teams are now in charge of their own gains and losses, without interference from the main board. With each team being accountable for specific outcomes, there is also a greater incentive for them to meet financial targets. Additionally, by dividing management teams, CEOs can focus on their area of expertise. Demerging also allows each new business to raise capital on its own, rather than relying on centrally assigned budgets. Another advantage of a demerger is that it enables partners in a joint venture or unsuccessful purchase to cut their losses and continue to run their own independent companies.
Considerations before demerging a company
In order to successfully carry out a demerger in Taiwan, it is imperative to conduct a comprehensive evaluation of multiple factors. This evaluation should encompass an examination of the company’s assets, debts, and activities, along with a comprehension of the legal and regulatory prerequisites. It is also important to take into account the effects on stakeholders, including shareholders, staff, clientele, and providers, to minimize any possible risks or interruptions. In conclusion, careful planning and consideration of these elements are necessary for a smooth demerger process in Taiwan.
Contact us
If you are thinking about undergoing a demerger for your Taiwanese company, our team is ready to help you through the entire process. Our knowledge in corporate law and business transactions allows us to offer customized advice to help ensure a seamless and successful demerger process. Whether you require help with adhering to legal requirements, analyzing finances, or communicating with stakeholders, we are dedicated to aiding you in reaching your objectives efficiently. Get in touch with us today to arrange a meeting and discover how we can assist your company in its demerger process.