Split-off a company (demerge) in Cambodia
A demerger can be chosen by a company as a strategic business decision in order to move some or all of its commercial activities to another entity. Essentially, a demerger involves splitting a company’s ongoing operations into separate parts, either creating a new independent entity or selling off/dissolving the split unit. The company that transfers its activities is called the demerged entity, while the company that receives them is called the resulting company.
Types of demergers
There are three main choices for demerging a company in Cambodia, each with its own tax benefits.
Statutory demerger
The formation of a new company and distribution of shares to the parent company’s shareholders is known as a “statutory demerger.” In a “three-cornered” demerger, the parent company transfers the new subsidiary to another company, which then issues 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
An alternative method to separate a company involves reducing the share capital of the original parent company. This reduction in capital is accompanied by a corresponding decrease in the capital of the subsidiary company, allowing for the transfer of a trading operation to new shareholders or holding companies controlled by those shareholders. A demerger through capital reduction can be beneficial in this scenario.
- 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 in a demerger. Shareholders of the original company receive shares in the new companies in return for their ownership rights during the liquidation process. In cases where shareholders have different opinions on the company’s future and wish to go their separate ways, a demerger is a viable option. This strategic decision enables each shareholder to pursue their own path independently.
Benefits of demerging
One of the primary reasons why corporations choose to demerge is to create more value for shareholders. After a demerger occurs, the newly formed company typically issues shares to its shareholders. If the demerger is successful and produces the expected benefits, profits will increase and the share prices of the two resulting companies will also go up. This increase in profits can be attributed to the fact that separate management teams are responsible for their own successes and failures without interference from the main board. This clear accountability leads to greater motivation to achieve financial goals. Additionally, the division of management teams allows CEOs to focus on their specific areas of expertise. By demerging, each new business can raise capital independently rather than relying on centrally allocated budgets. In case of a failed joint venture or acquisition, each partner can cut their losses and continue running their own separate company.
Considerations before demerging a company
In order to successfully carry out a demerger in Cambodia, it is important to carefully assess a variety of factors. This involves examining the company’s assets, debts, and activities, as well as grasping the legal and regulatory obligations. It is also crucial to take into account the effects on stakeholders, including shareholders, staff, clients, and partners, in order to prevent possible risks or interruptions. In conclusion, thorough planning and assessment of these aspects are vital for a smooth demerger process in Cambodia.
Contact us
If you are thinking about implementing a demerger for your company in Cambodia, our team is ready to support you through the entire process. We have extensive knowledge in corporate law and business deals, allowing us to offer personalized advice to make sure the demerger goes smoothly and successfully. Whether you require help with adhering to legal regulations, conducting financial evaluations, or communicating with stakeholders, we are dedicated to aiding you in reaching your objectives efficiently. Reach out to us now to arrange a meeting and find out how we can help during your company’s demerger process.