Split-off a company (demerge) in Nigeria
An organization might decide to undergo a demerger as a strategic business decision in order to shift a portion or all of its business operations to a different entity. Essentially, a demerger happens 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 operations is called the demerged entity, while the acquiring company is referred to as the resulting company.
Types of demergers
There are three main options for demerging a company in Nigeria, each with its own tax-efficient 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 parent 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
One alternative method of separating a company is to decrease the share capital of the parent company, along with a corresponding reduction in the capital of the subsidiary company. This allows for the transfer of a business operation to new shareholders or holding companies controlled by them. A capital reduction demerger can be beneficial in this situation.
- 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 liquidation demerger. The shareholders of the original company receive shares in the new businesses in exchange for their interests during the winding down process. If shareholders have different opinions on the company’s future and want to go their separate ways, a demerger may be an option. This allows each shareholder to pursue their own path independently.
Benefits of demerging
One of the primary reasons why companies choose to demerge is to enhance shareholder value. After a demerger, shareholders often receive shares in the newly created company. If the demerger results in the expected benefits, profits and share prices for both firms will typically increase. This may be due in part to the fact that separate management teams are now responsible for their own performance, without interference from the main board. Additionally, with clearer accountability for outcomes, management teams may be more motivated to achieve financial targets. Furthermore, by dividing management teams, CEOs can concentrate on their specific strengths and areas of expertise. Demerging also allows each new business to raise its own capital instead of depending on centrally allocated budgets. In case of a failed joint venture or acquisition, the advantage of a demerger is that each partner can minimize losses and continue operating their independent businesses.
Considerations before demerging a company
Before moving forward with a demerger in Nigeria, it is crucial to conduct a comprehensive assessment of different factors to guarantee a seamless and profitable transition. This involves examining the company’s assets, debts, and activities, as well as grasping the legal and regulatory obligations associated. It is also important to consider the effects on stakeholders, including shareholders, staff, clients, and vendors, to prevent potential risks or interruptions. In general, careful planning and contemplation of these aspects are necessary for a successful demerger process in Nigeria.
Contact us
If you are thinking about splitting up your company in Nigeria, our team is available to help you during the entire process. We have extensive knowledge in corporate law and business deals, and we can offer personalized advice to make sure the demerger goes smoothly and successfully. Whether you require help with following legal regulations, analyzing finances, or communicating with stakeholders, we are dedicated to assisting you in reaching your objectives efficiently. Get in touch with us now to set up a meeting and discover how we can aid your company throughout the demerger process.