Split-off a company (demerge) in Thailand
A company might choose to demerge as a strategic decision to move some or all of its business activities to another entity. This essentially involves dividing its current operations into separate parts to create a new independent entity or sell off/dissolve the separated unit. The company that transfers its activities is called the demerged entity, while the receiving company is referred to as the resulting company.
Types of demergers
There are three main ways to demerge a company in Thailand, each with its own tax-efficient benefits.
Statutory demerger
When a new company is created 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 another company, which then gives shares in the new company to the shareholders of the parent company in exchange for the distribution. Another option is for the parent company to directly pay dividends to its shareholders on the new shares.
Share capital reduction demerger
One alternative way to separate a company is by reducing the parent company’s share capital. This involves decreasing the capital of the company being transferred, allowing a business operation to be moved to new shareholders or holding companies that are controlled by those shareholders. The process of reducing capital through a 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 distributed to new entities through a liquidation demerger. Shareholders from the original company receive shares in the new companies as compensation for their ownership rights when the company is dissolved. If shareholders have different opinions on the company’s future and want to pursue different paths, a demerger is an option. This strategic decision allows each shareholder to pursue their own direction separately.
Benefits of demerging
One of the main reasons why companies choose to demerge is to create more value for their shareholders. After a demerger, the shareholders often receive shares in the newly formed company. If the demerger results in the expected benefits, profits will increase and the share prices of both resulting companies will also rise. This increase in profits can be attributed to separate management teams being accountable for their own gains and losses without interference from the main board. Additionally, the clear division of accountability may lead to higher motivation to achieve financial targets. Moreover, CEO’s can focus on their specific brand or area of expertise after a demerger. By allowing each new business to raise its own capital instead of relying on central budgets, a demerger provides more financial flexibility. Another advantage is that if a joint venture or acquisition does not succeed, each partner can minimize their losses and continue running their independent company.
Considerations before demerging a company
Performing a comprehensive assessment of different aspects is necessary before carrying out a demerger in Thailand to guarantee a seamless and effective transition. This entails examining the company’s assets, liabilities, and operations, and comprehending the legal and regulatory obligations. It is also vital to take into account the repercussions on stakeholders, including shareholders, employees, customers, and suppliers, in order to minimize possible risks or interruptions. In general, careful planning and contemplation of these factors are crucial for a prosperous demerger procedure in Thailand.
Contact us
If your company in Thailand is thinking about a demerger, our team is available to help with the entire process. We have specialized knowledge in corporate law and business deals and can offer personalized assistance to guarantee a seamless and prosperous demerger. Whether you require help with following legal regulations, analyzing finances, or communicating with stakeholders, we are dedicated to aiding you in reaching your objectives efficiently. Get in touch with us now to arrange a meeting and discover how we can assist your company through the demerger process.