Spin-offs: a new way of converting companies

You have probably already encountered terms such as mergers, acquisitions or company splits. The amendment to the Business Corporations Conversion Act now introduces a new concept, the spin-off. Find out how spin-offs differ from other types of conversions and how they work in practice.

What is a corporate conversion by spin-off?

In July 2024, amendments to the Companies and Co-operative Societies Conversion Act came into force and introduced a new form of company conversion - a spin-off. Thus, in addition to the previously established options for the division of companies such as spin-off and demerger, another option has been added, which essentially represents a specific type of contribution of a business establishment and allows for the preservation of the company being divided.

A spin-off is therefore a new way of dividing a company. The company being divided does not cease to exist, but the spun-off part of its assets is transferred in exchange for a share in:

• the newly created company = spin-off with the creation of a new company, where the company being split becomes its sole shareholder;
• an existing company = a spin-off by merger, where the company being divided acquires a share in the successor company.

The hived-off portion may be transferred to a single company or to a larger number of companies, and a combination of the two forms described above is also possible.

Whereas in a split or spin-off the shareholders of the successor entity are the shareholders of the company being split, in a spin-off the shareholders are the shareholders of the company being split. The latter can thus easily set up a subsidiary company while retaining both the tax and succession advantages.

How does the spin-off affect the accounting?

As with other forms of transformation, the so-called 'decisive date' is important - both from an accounting and income tax perspective.

Both the demerged and the successor company (now "successor in interest") must prepare:

• final accounts as at the date preceding the record date;
• an opening balance sheet as at the operative event.

The Income Tax Act has not yet been amended and therefore does not yet contain the new concept of "spin-off". The current taxation rules should also apply to the newly introduced type of transformation. These address situations such as:

• Determination of the acquisition price on the shares of both the demerged and the successor company;
• the assumption of tax losses of the distributing company;
• the assumption of reserves and provisions related to the spun-off part;
• taking over items deductible from the tax base of the demerged company, etc.

Similarly, the established rules for depreciation of tangible assets (preservation of tax values, continuation of depreciation, etc.) should apply.

We deal with the articles and changes for you

We are familiar with mergers, acquisitions, amalgamations and company splits. We will advise you on how to transform your company or arrange changes in the commercial register for you. Contact us using the form below and together we will find a solution.

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