Demerger to resolve shareholder dispute

Splitting the company assets by demerger when shareholder relationships have become counterproductive, can provide a tax effective solution

Where the relationship between a group of shareholders has broken down then it can be counterproductive to continue to operate in one company. The shareholders might be considering ways to separate the ownership of the assets. The tax cost of just moving assets from one company to another could be considerable and undermine the wealth generated by the company to date.

In these circumstances a demerger should be considered. A demerger can help to separate the assets into a number of companies required by the separating shareholders so that they can go on to take their respective part of the business or investment activity under their sole ownership.

It is possible to do this with the benefit of HMRC clearance before implementing the transactions. So provided it is implemented in the right way you know HMRC will not apply anti-avoidance rules.

Why consider a demerger? The tax costs of simply separating the assets could be considerable. In addition the practical aspects of buying out a shareholder group may create barriers. Using a demerger should minimise the tax costs by using statutory tax relieving provisions to minimise any tax costs in the company.

We have a separated many companies in recent years and reduced the tax costs in many cases to very low levels, often zero or just ½% stamp duty cost.

We have included a case study.

We have designed and implemented many demerger transactions and specialise in this area helping clients with an effective and efficient alternative to the larger accountancy firms. Don’t let tax stop you from separating your business, there could be a tax efficient path through. Contact Craig Simpson or Richard Coombs to discuss your case.

This guidance is generic in nature and does not constitute advice. You should take no action based upon it without consulting ourselves or your own professional advisor.