As we have previously discussed, divisions, or split-ups, occur when a company transfers some parts of its capital to newly-formed or pre-existing companies. When a company transfers all assets and liabilities, this is called division by absorption. When this is the case, the demerged company disappears. However, under a division by creation, the company simply reduces its share capital. Throughout this entry, we will introduce you to some of the benefits of these divisions.
Divisions prevent companies from ceasing to exist.
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Advantages of divisions:
● The liquidation of the company is not required to create new companies, nor are new capital contributions necessary.
● These new companies have the advantage of being managed by an experienced board, which may not be the case of newly-formed companies.
● The interests of creditors are not affected by the split-up of the company, as its debts are backed by the share capital of the demerged companies.
These are only some of the advantages of divisions. They may be useful to you in case you decide to split your business.
What factors should be considered before splitting a company?
Before splitting a company, it should first be carefully analyzed. The goal of the division should be established, and the causes, consequences, benefits, and downsides of splitting the company should be made known. There may be some other options such as mergers or liquidations, which should be studied before making any definitive decision.
Shareholders involved in this process can judicially oppose the split within 45 days after it has been announced in the publication system of the Secretariat of Economy. For this opposition to be valid, at least 20% of the company’s share capital should be owned by these investors.
Shareholders who disagree with splitting the company have the possibility to vote against it and withdraw from the business.
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Remember that at QuAdrans we offer the fiscal service to both national and foreign companies. We advise you in relation to mergers, divisions, and liquidations for you to make the best and most productive decisions. To learn more about this service, you can contact us by clicking here.
