During a company’s lifespan, there may be a need to make structural changes. This can be due to external circumstances, such as market developments, or internal conditions, such as a change in ownership. Such a restructuring may, for example, consist of a demerger of the company.

There can be many benefits to splitting companies up, and our experts can advise you on what is most beneficial to your business. There can be both tax related and legal challenges when you split your business up.

What is a demerger of a company?

A demerger means, somewhat simplified, that one company becomes two or more. Therefore, the demerger stands in contrast to a merger, where two or more companies become one.

There are two types of demergers: complete and partial demergers.

A complete demerger is when a company transfers all its assets and obligations to two or more existing or new companies and then ceases to exist itself.

An example of such a complete demerger could be a company that deals with both production and sales but now wants to divide production and sales into two separate companies. Here, the company can carry out a demerger, where all assets and liabilities relating to production are transferred to a new production company and all sales activities are transferred to a new sales company. Thereby, there is nothing left in the original company.

A partial demerger is different in that the company does not transfer all of its assets and obligation to other companies, but only a portion. Therefore, the transferring company continues to exist after the demerger – only “smaller” than before.

How does a demerger take place?

The Danish Companies Act sets out a fixed procedure for how a demerger is carried out. The rules reflect the merger rules, and just as with mergers, the Companies Act, therefore, requires that many documents be prepared.

The documents to be prepared are:

  • Demerger plan
  • Demerger statement
  • Intermediate balance
  • Valuation report for capital increases
  • An assessor’s statement
  • A creditor declaration

However, several of these document requirements may be waived if an agreement is reached between the shareholders.

The demerger plan and the creditor declaration must be submitted to the Danish Business Authority, which publishes the documents. The demerger must be completed no earlier than four weeks after this publication. However, if only private limited companies participate in the demerger, there is a possibility of an “immediate demerger”. An immediate demerger means that the demerger can be completed before the four weeks have elapsed.

What are the benefits of demerging a company?

There may be several good reasons to carry out a company’s demerger.

In a generational change where the parents have several children who have to take over the company, it can be advantageous to carry out a demerger. Upon the demerger, the original company is divided into several smaller companies, and each child can then take over his or her own company. This ensures that all the children get a share in the company.

A demerger can also be the solution to a conflict between the company’s owners. Many companies are owned by more than one shareholder and if disagreements arise between them, it can be challenging to solve the problems. For example, controversies over the company’s future strategy. Here, a split can be the way forward. Through the demerger, each owner gets his own company, which he can control in precisely the direction that he or she finds most advantageous.

A frequently used constellation in company law is holding companies. By splitting up a holding company, the owners can each get their own holding company. The advantage of this is that the owners then decide how the assets in the holding companies are to be managed.

Buying and selling companies

A demerger can be highly advantageous in connection with the purchase and sale of companies.

Firstly, a demerger allows for the sale of just a portion of the company’s activities. If a company is engaged in several different business areas but wants to divest a single area, this can be done through a demerger. Here, the activities in question are split into an independent company, which can subsequently be divested separately. The remaining part of the company continues as before with the existing owners after the demerger.

Such a split is also an advantage for the buyer. With a demerger, he has the opportunity to precisely acquire the part of the company that he is interested in. A demerger can therefore help facilitate both the purchase and sale of companies.

Let us help you with your demerger

At Advokatgruppen, we are always ready to help you and your company. We have many years of experience with demergers and we can therefore help both small and large companies in all types of businesses. Contact our skilled lawyers today for a no-obligation and free assessment.

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