February 5, 2024

Demergers: What Are They?


You can divide up a business by reducing the share capital of the parent company. A trading or property business is transferred to new shareholders or new holding companies owned by those shareholders with a corresponding reduction in capital of the transferring company.

Over the last few months, we have been instructed on a range of scenarios involving the splitting of a trade or a group. I've learnt that this piece of work will almost definitely have its very own nuances that must be investigated.

One scenario is whereby a property investment company needs to be split between say family members or two families (ie two fathers set up many years ago - now the children are older in both families and therefore its wise to split things up). This requires a Capital Reduction Demerger to be considered and implemented.

A Capital Reduction Demerger is useful/required if:

• You can’t use a statutory demerger or liquidation demerger.

• The entities aren’t trading companies. [We undertake CRDs when dealing with large property investment companies as non-trading.]

• You don’t want to liquidate any of the companies in the mix.

• You are planning to sell certain members of the group.

• There are not enough distributable reserves in the distributing company.

Demergers are known to be complex hence professional advice MUST be engaged. Happy to discuss such matters further as we have the experience and expertise to navigate the tax and commercial issues surrounding such transactions, whilst ensuring no unnecessary tax leakage and ensuring minimal disruption to the business! 

As the business accountants, we are happy to work alongside you on such projects in a fluid and timely fashion.

In terms of operations, we are flexible and usually engage directly with the client and then pay over an introducer/assistance fee or on a white-label basis, whereby you take lead of the project and we undertake the work in the background (or as an extension to your firm).

Happy for you to call me #youfirms in-house tax consultant.

Not an issue if this is what you prefer.



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