Company reorganisation: Outsourcing and Spin-of arrangements

Company reorganisation: Outsourcing and Spin-of arrangements

FRTG Group has recently announced the merger of RTR Treuhand GmbH and Hohl Kleinheisterkamp and Partner Partnerschaftsgesellschaft into the Franz Reißner Treuhandgesellschaft mbH. However, in some cases a spin-of may also be a necessary form of company reorganisation. Economic, tax related or general legal issues can make this decision necessary.

Under company law, a spin-off is a subset of a split according to German Transformation Act (UmwG), whereby the shares of the acquiring legal successor taking over the business are not granted to the partners of the transferring legal entity (= the old company) but to the transferring legal entity itself. Consequently there is an extension of the shareholding chain.

One possible reason for spinning of parts of a company could be that the proprietors of an enterprise feel that the company is too big and they want to split the company into smaller parts to act more flexible or to separate the responsibilities for certain business areas without changing the shareholdings. Another common reason to split a company into different independent subsidiaries is the aim to gather and manage the whole company under a management holding company.

The spin-off process can be divided into three phases:

PHASE 1 – PREPARATION
During this phase the basics of the spin-off have to be prepared by paving the way and creating a spin-off plan and contract.

PHASE 2 – DECISION MAKING
Based on the prepared contracts, plans and reports decisions are made with regard to the spin-off. Generally, this requires a three-fourths majority vote. In addition, the decision has to be notarized.

PHASE 3 – EXECUTION
During this phase the entry in and application to the commercial register takes place. Only with the entry in the commercial register is the spin-off legally effective.

If a spin-off is planned it is important to be clear about the goals and objectives, particularly with regard to legal and fiscal requirements. It is difficult to reverse any restructuring process and therefore thorough planning with professional expertise is needed.

We are happy to assist and advice in these matters.