Patriot.Legal advises companies going through corporate reorganization aimed at identifying core, profitable and high-potential business units to attract investments, implement development programs etc
According to Article 56 of the Commercial Code of Ukraine (CCU), the separation of an entity is one of the legal ways to create a business entity (along with the formation of a new, transformation, merger, acquisition, division). In some cases, the procedure of forced spin-off is provided as a mechanism to comply with the requirements of the country’s anti-monopoly and competition laws.
The essence of the procedure “reorganization by spinning off a new legal entity” is stated in Article 109 of the Civil Code of Ukraine (CCU). This refers to the transfer of part of the property, rights and obligations of a legal entity to one or more new entities. The procedure is performed on the basis of the distribution balance. Unlike other forms of reorganization, the spin-off does not result in the termination of legal entities. The algorithm of spinning off a legal entity is connected with state registration of the new subject (new subjects) of business and re-registration of the “old” one, with settlement of accounting and tax accounting issues, observance of creditors’ rights and some other issues.
Patriot.legal specialists are ready to support clients in solving such problems. Our experience of legal support for businesses of all sizes allows us to work as efficiently as possible, without leaving even the slightest chance of problems in the future.
Instructions (methodological guidelines) for this procedure are compiled by lawyers for each business entity individually. The objectives to be achieved are taken into account, e.g. to optimize tax burden, to create a firm with narrow specialization, etc. The order of this procedure is consistent with the requirements of the Commercial Code and the Civil Code, as well as the following laws:
Reorganization of a legal entity in the form of a spin-off includes the following stages:
Qualified legal support allows business owners not to worry about the nuances of the spin-off procedure. However, we want to give a brief explanation of how the key issues in this area are resolved.
The amount of capital of business entities after the spin-off must be equal to the charter capital of the company from which the spin-off is made. The distribution of shares among the participants in the LLC is made while maintaining the ratio that was prior to the spin-off. To give an example: if a participant owned a 30% share in the “old” company, then after the spin-off he will own 30% shares in both the “old” and the new company.
The newly-formed company is not liable for the tax obligations of the original entity. At the same time, tax preferences, if any, will not be granted to the “old” company. The new business entity can choose any convenient system of taxation (including – not the same as the primary entity).
From an accounting point of view, the transfer of property and liabilities on a distribution balance sheet does not equate to a sale or gratuitous transfer. It is not reflected in accounting entries. Accounting entries are also not created for the formation of the charter capital of the spun-off organization.
If this is any kind of company reorganization, employees are automatically enrolled in the staff of the newly created business entity. No resolution (order, decree) is issued to this effect. At the same time, information on the newly-formed company must be entered in the employment records of employees.
In order to maintain the necessary business relationships, counterparties should be informed about the reorganization of the business entity. For this purpose, a notice is prepared and sent out by email. Such a mailing should preferably be done in advance in order to minimize the risk of problems with re-issuing certain documents related to cooperation. In order to conduct the spin-off of a company legally correctly, contact the lawyers of Patriot.Legal!