Company division

What it means

A division is a transformation in which a company ceases and its estate passes to several successors, or a part is spun off while the original company continues.

It is used to separate unlike activities, prepare one division for sale, or split assets between members who have decided to go their own ways.

A division differs from the sale of part of a business in that assets and liabilities pass not under a purchase contract but directly by law on the date of registration. The successor company therefore takes over rather than buys, and no purchase price is paid; the members receive stakes in the successor companies in return.

How it works in practice

The process mirrors a merger: a division project, a valuation, member approval, creditor protection and a register entry. Interim accounts are prepared as of the decisive date.

The project must state precisely which assets, liabilities and contracts go to which company. Anything left unstated falls under statutory rules that may suit nobody.

In a division where the original company ceases, we prepare extraordinary financial statements as of the day before registration and open the successors’ books with balances under the project. The tax return for the shortened period is due within a deadline counted from registration, so the date of the transformation is planned with that work in mind.

What to watch out for

Employees move with the part of the business they belong to. That transfer carries its own information duties, and underestimating it means disputes as soon as the change is registered.

The allocation of debts in the project binds the companies among themselves, but by law a creditor can also turn to a successor that was not allocated the debt. A company that came out of the division with net assets may later end up paying someone else’s liability; a division is therefore not a way to leave the debts in one company and the assets in another.