Split by spin-off: what is

it? Why use it?

Apr 16, 2024 | Tax News The demerger through spin-off is an innovative operation through which a company assigns part of its assets to one or more newly established companies and the related shares or quotas to itself, continuing its business. A useful tool for those who want to set up a holding company and secure all or part of the company's assets. Why split the company? • Split by spin-off: what is it? • Difference between spin-off and ordinary demerger • Difference between split with spin-off and contribution • Advantages and disadvantages of the spin-off • Why use this operation? • FAQ Split by spin-off: the answers to your questions • An extra weapon to protect assets • Why is it important to analyze the company? Split by spin-off: what is it? The demerger through spin-off is a very attractive operation for companies that want to start an efficient corporate reorganization aimed at protecting their assets. An instrument that is added to the ordinary split, contribution or merger. The "split-off" procedure involves a company transferring its assets to a newly established company, receiving in exchange a shareholding (which is registered in the assets of the split company, i.e. the company that transferred its assets). Therefore, the shares are not transferred to the members. To simplify, imagine the split company as a company that decides to "share" a part of its business with one or more new companies. The split company transfers only a portion of its assets to the new beneficiary companies, while it retains the rest and continues to operate. The validity of the demerger through spin-off, unlike the ordinary one, concerns operations started after 3 July 2023. Difference between spin-off and ordinary demerger The spin-off differs from the ordinary one in several aspects. First of all, the shares of the beneficiary company are not attributed to the shareholders (as happens in the ordinary split) but to the split company. As a result, the demerged company does not suffer a reduction in its net assets. In practice, what happens is that: • the split company transfers the assets to the beneficiary company; • the recipient company issues shares for the goods received; • the shares do not go into the hands of the members; • the split company receives the shares. So what? A balance is created, because the assets that have been transferred to the beneficiary are replaced by the equity investments. As a result, everything remains unchanged and the net worth is not reduced. The other difference concerns the beneficiary company. If in the ordinary split the beneficiary can be a pre-existing company, in the case of a spin-off the company must be newly established. Difference between split with spin-off and contribution The differences with the provision are limited. In fact, the result obtained with the spin-off would be almost identical to that of the contribution. It could, however, represent an alternative to the transfer itself. In fact, the contribution does not always benefit from fiscal neutrality (i.e. starting a corporate reorganization or transfer operation without adding tax burdens). The contribution, in fact, can be made in a tax neutral regime - without generating tax capital gains or losses - only if carried out with continuity of book values and the tax cost of the contributed shareholding coincides with its book value. However, choosing between split and transfer in the case of transfer or business branch is indifferent. The situation, however, changes when the transfer concerns a single activity, then the separation is preferable, precisely because of the possibility of being able to benefit from the principle of fiscal neutrality. The other difference concerns expertise. If, for example, the transfer concerns a limited company that transfers a business branch to a new company, an appraisal is always necessary. A situation that does not occur in the spin-off. Furthermore, with the contribution, the right of withdrawal is recognized if the shares are assigned in a non- proportional manner. In a spin- off, however, this right does not exist since the operation does not change the corporate structure. Advantages and disadvantages of the spin-off The demerger, which separates companies like all extraordinary operations, has advantages and disadvantages. Among the advantages we have: • Flexibility: allows you to separate different company branches without having to liquidate them. • Tax savings: in some cases it can lead to tax savings compared to other corporate operations. • Strategic planning: useful for reorganizing the corporate group or concentrating activity on specific market sectors. Among the disadvantages, however, we find: • Complexity: the operation requires a complex procedural process and the advice of expert professionals. • Timing: the demerger through spin-off may take a long time to complete. Why use this operation? The main objective of the split through spin-off is to protect the assets. In fact, it could be a valid tool for separating all real estate assets from the operating company (the one that carries out the commercial activity, for example), thus reducing any possible entrepreneurial risk. For this reason, it is seen as a very valid operation to create, for example, a: • family holding company, parent company that owns the operating companies; • sub-holding, holding company that is inserted between the family holding and the operating companies. In both cases, however, the split company (which transfers the assets to the beneficiary) must still maintain a portion of the asset (albeit minimal) to comply with the principle of "continuity of activity". FAQ Split by spin-off: the answers to your questions What is the difference between partial demerger and spin-off? The main difference between partial demerger and spin-off lies in the effects of the operation and the applicable regulations. In a partial demerger, the shareholders of the beneficiary company are also the shareholders of the demerged company, while in a demerger, the beneficiary company is only the partner company of the demerged company. How does a company split work? With a split, a company transfers its entire assets to multiple companies, already existing or newly established, or part of its assets, even to a single company. The relevant shares or quotas are assigned to its members. How many types of splits are there? There are two main types of split: total split and partial split. A total demerger occurs when the demerged company fully transfers its assets to two or more beneficiary companies. If the beneficiary companies are newly established, we speak of a "close" total split; if they already exist, we speak of a total split "by incorporation". How to do a corporate split? The demerger process is divided into three phases: project, resolution and act of demerger. Each phase is separated by a period of time to allow non- consenting shareholders and corporate creditors to examine the documentation relating to the operation and to oppose the split. An additional weapon to protect heritage Therefore, an extra weapon for companies that decide to carry out a reorganization; and an alternative solution for far- sighted entrepreneurs whose objective, in addition to generating profit, is also to protect company and real estate assets. The protection of the entrepreneur's assets, family, corporate and real estate, is an extremely topical topic. Market uncertainties and geopolitical events show us that no company is immune to failure. Therefore, it is necessary to act in time, before everything vanishes. Also because, for an asset protection process to be effective, an analysis and evaluation of the necessary assets for protection must be prepared in advance. Why is it important to analyze the company? A targeted and timely analysis allows you to: • identify risks and tools to protect family and company assets; • find the best solution to minimize the taxable amount; • design a business growth process; • evaluate the expectations of family members, understanding who can carry on the business and who cannot. As First Consulting, thanks to our team of professionals, including chartered accountants, lawyers and tax experts, we can help you: • implement strategic tax planning to reduce the tax burden from 20% to 70%; • protect company assets to protect one's wealth from possible creditors (which can be suppliers, banks and above all the tax authorities); • achieve exponential growth, through the same tools that we used to create from scratch and in just 5 years, a business group with a turnover of over 25 million and which we listed on the Milan stock exchange. Fill out the questionnaire now: 2 minutes of your time can change your fiscal future, your business and your family forever.