Split-off a company (demerge) in Vietnam
A company might choose to undergo a demerger in order to shift certain or all of its business operations to a different entity as a strategic maneuver. Essentially, a demerger takes place when a company splits its current operations into distinct parts, establishing a new independent entity, or divesting/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 choices to consider when demerging a company in Vietnam, each with its own tax benefits.
Statutory demerger
A “statutory demerger” is when a new company is created and shares are given to the shareholders of the parent company. 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 exchange for the distribution. Another option is for the parent company to pay a direct dividend to its shareholders on the new shares.
Share capital reduction demerger
One alternative method to separate a company is by reducing the parent company’s share capital, which is then accompanied by a decrease in the transferring company’s capital. This allows for a trading business to be transferred to new shareholders or holding companies that are owned by those shareholders. A demerger through capital reduction can be advantageous in certain situations.
- 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 dissolved and its assets are moved to new entities through a demerger process, the shareholders of the original company receive shares in the new companies in return for their stake during the winding down period. In cases where shareholders have different opinions on the company’s future direction and want to pursue different paths, a demerger can be a possible solution. This strategy enables each shareholder to follow their own path independently.
Benefits of demerging
One of the primary reasons why corporations choose to demerge is to increase shareholder value. After a demerger, the newly formed company often distributes shares to its shareholders. If the demerger is successful and delivers the expected benefits, profits and share prices for the resulting entities will likely increase. This is partially due to the fact that separate management teams will now be in charge of their own profits and losses, without interference from the main board. Additionally, with clearer accountability for outcomes, management teams may be more motivated to meet financial targets. Demerging also allows CEOs to focus specifically on their brand or area of expertise. Each new business formed after a demerger can raise its own capital instead of relying on budgets assigned centrally. In the event of a failed joint venture or purchase, the advantage of demerging is that each partner can reduce their losses and continue running their own independent company.
Considerations before demerging a company
A comprehensive assessment of different aspects is necessary before moving forward with a demerger in Vietnam to guarantee a successful and seamless transition. This includes examining the company’s assets, liabilities, and operations, as well as familiarizing oneself with the legal and regulatory obligations. It is important to also consider the influence on various stakeholders, like shareholders, employees, customers, and suppliers, in order to prevent any possible risks or interruptions. Ultimately, detailed planning and consideration of these factors are crucial for a prosperous demerger process in Vietnam.
Contact us
If you are thinking about splitting your company in Vietnam, we are ready to help you throughout the entire process. Our team has extensive knowledge in corporate law and business deals, allowing us to offer personalized support to make sure the demerger goes smoothly and successfully. Whether you require help with following the law, financial assessments, 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’s demerger process.