As a company grows, the challenges, issues and problems not only increase, but change. The organisation can become more complex, partners’ interests diverge and business risk threatens the accumulated wealth. This is where corporate spin-offs come in, a strategic operation, which we have discussed before and which allows companies to restructure, protect assets and improve operational efficiency.
As this is a topic of great interest to our readers, in this article we explain what a spin-off is, what it is used for and how to carry it out successfully.
What is a company spin-off?
Corporate spin-off is the process by which the assets of a company are divided into two or more parts. These parts are transferred to new or existing companies, and the partners receive shares or participations in the resulting companies. In the case of a full spin-off, the original company is extinguished, but not liquidated, as its assets are not divided, but transferred.
The decision is regulated by articles 68 to 80 of the Law on Structural Modifications of Commercial Companies, and its main objective is to adapt to the needs of the growing company, protect assets and optimise the management of the business.
In which cases is a business decision useful?
The reasons for demergers are as varied as the companies themselves, but the most common include:
- Protecting business assets
High-value assets, such as real estate, are often exposed to business risk. A spin-off allows these assets to be separated from the day-to-day business by placing them in a risk-free company. - Division of activities
When a company operates in different lines of business, the spin-off facilitates their separation for more efficient management. For example, a business that combines manufacturing and distribution can split these activities into two separate companies. - Resolving conflicts between partners
In situations of disagreement or deadlock, the spin-off allows the assets to be divided and each partner to manage a new company according to his or her own interests. - Simplifying complex structures
Large companies can benefit from a decision to reduce organisational complexity and increase efficiency. - Diversifying risks
If one branch of the business is riskier than another, the spin-off helps to protect the overall financial stability of the business group. - Facilitating the sale or attracting investors
Separating a separate business unit from the rest of the enterprise can make it more attractive to potential buyers or investors.
Types of corporate spmpany divisions
There are three main types of spin-off, each with specific characteristics:
1. Full spin-off
The assets of the company are completely divided into two or more parts. The original company disappears, and its assets are distributed among new or existing companies.
2. Partial spin-off
One or more parts of the business assets are transferred to other companies, but the original company continues to exist. To be valid, the transferred parts must constitute separate economic units, such as a specific branch of activity.
3. Segregation
In this case, one or more parts of the assets are transferred to other companies, but the difference is that the hived-off company receives shares or participations in the resulting companies.
Steps to carry out a company spin-off
Making a business decision is a complex process that requires a series of steps to be followed precisely. Here are the main stages:
1. Drawing up the draft terms of the spin-off
This document is essential and should include:
- Identification data of the companies involved.
- Type of exchange of shares or units.
- Economic reasons for the operation.
- Valuation of assets and liabilities.
- Articles of association of the resulting companies.
- Accounting effect date.
2. Independent expert report
If any of the participating companies is a public limited company, an expert will assess the operation to ensure transparency and fairness.
3. Preparation of the decision balance sheet
This document details the financial situation of the company prior to the transaction and must be audited if the company is required to do so.
4. Approval at the General Meeting
The spin-off must be approved by the shareholders at a general meeting. The resolution must be published in the Official Gazette of the Commercial Registry (BORME) or in a widely circulated newspaper.
5. Communication to workers
It is mandatory to inform employees about the operation and its implications.
6. Public disclosure and registration
The spin-off agreement is notarised and entered in the commercial register.
7. Subsequent formalities
They include the tax and labour deregistration of the original company, and the communication to the Tax Agency about the application of the tax neutrality regime.
Advantages of a well-excecuted spin-off
- Wealth protection : Separates strategic assets from business risk.
- Operational efficiency: Facilitates management and allows specific decisions to be made for each business unit.
- Strategic flexibility : Makes it possible to adapt quickly to changes in the market.
- Conflict resolution : It is an effective tool for overcoming social blockages.
- Attractive for investors: A clear and segmented structure improves the valuation of the business.
Spin-offs in family businesses as a strategic tool
In the context of family businesses, spin-offs have additional value. These companies often face challenges such as generational succession, conflicts between family members and the need to protect the wealth accumulated over the years.
With a split, it is possible:
- Separate activities so that each family branch manages its own business unit.
- Ensure that historic assets, such as real estate, are protected from risk.
- Prepare the company for succession, facilitating the transition to the next generation.
Why do you need expert advice?
Spin-off is a transaction that can transform your business, but it is also a technical process and fraught with legal requirements. Hiring experts in corporate restructuring ensures that:
- All legal and fiscal requirements are met.
- The operation is efficient and risk-free.
- The full benefits of the tax neutrality regime are exploited.
At Confianz , we have been accompanying companies in their spin-off processes for 30 years, ensuring that every step is aligned with their strategic and operational objectives.
Is spin-off the step your company needs?
If your company has grown, faces conflicts between partners or is simply looking for a more efficient structure, the decision could be the solution. Contact us and we can work together on a strategy that protects your assets and optimises your business.