One of the changes introduced by the latest amendment to the Commercial Companies Code, in force since September 15, 2023, but perhaps the most significant one, is the expansion of the existing methods of division of companies, including the so-called division by separation.
Is division by separation an alternative to non-monetary contributions to the share capital?
At various stages of their business activities, entrepreneurs make decisions about segregating assets or parts of their business to a separate entity.
The need for separation may arise from the necessity to mitigate risks or to separate riskier areas of business from those characterized by greater stability and safety. It can also result from the need for financing, implementing joint ventures with other entities, or simply as a result of the development of different areas of business.
Until now, the most commonly used legal tool in such situations has been the non-monetary contribution of an organized part of the enterprise. However, this solution was not always implemented due to its impracticality.
What is the essence of division by separation?
Division by separation involves transferring part of the assets of the dividing company to an existing or newly formed company or companies in exchange for shares or stocks of the acquiring or newly established company.
This means that in the case of division by separation, the shareholders/shareholders of the dividing company are not parties to the transaction at all. They do not participate in the process and do not acquire shares/stocks in the company to which part of the business is transferred.
The subject of separation may be:
- an enterprise,
- an organized part of the enterprise,
- a set of assets of the dividing company,
- a single asset of the dividing company.
What are the benefits of division by separation?
The advantage of division by separation lies in the principle of partial universal succession. The acquiring company, on the day of the separation, assumes the rights and obligations of the dividing company specified in the division plan.
The advantage over non-monetary contributions is that there is no need for the consent of the counterparties to transfer obligations, including those arising from concluded contracts, or rights arising from various administrative decisions.
Universal succession accompanying the division covers almost all civil law, organizational, and employee rights and obligations resulting from the specified rights and obligations in the division plan.
There is no need to separately transfer civil law agreements, obligations, or obtain consent for their transfer, and no need to sign amendments.
It is worth considering whether division by separation will be a faster, less costly, and, above all, feasible solution than a non-monetary contribution of the enterprise.