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Demerger – when founders step away

13 September 2021 | Karen Davies

­­­­A demerger is the process by which a company is divided into two or more separate companies so that it can either trade separately or be sold off individually.

The Company, XY Limited, was operating two separate types of businesses (Business X and Business Y). The founding shareholders, George and Harriet, had stepped away from the day to day running of the business and wanted to sell most of their shares in the Company. The management teams of Business X and Y wanted to purchase the shares in their respective businesses.

George and Harriet and the Company obtained specialist tax advice and submitted an application for clearance on the proposed transaction, successfully obtaining HMRC clearance to ensure capital gains tax and income tax did not arise on the transaction.

Following the transaction steps set out in the clearance application, GL prepared the documents for each of the 4 demerger steps. Immediately after the demerger,  it was proposed the two management teams would purchase the holding companies so we were also instructed to draft and negotiate the new shareholders’ agreement and articles of association for the holding companies.

It was agreed that George and Harriet would keep 10% of the Company each and for key decisions (as detailed in the Shareholders’ Agreement), the directors and/or other shareholders would need George and Harriet’s consent before proceeding.

After completion, each business can now trade independently – the management teams have control of the companies and George and Harriet still have a small shareholding until they are ready to retire or sell.

Specialist demerger legal advice

Our expert team of corporate lawyers are on hand to offer advice and support every step of the way. If you would like to discuss your situation, please call 0117 906 9400 or email hello@gl.law 

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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