The EU Mobility Directive (EU 2019/2121), effective as from 31 January 2023 across all EU Member States now enables a company incorporated in one EU Member State to divide itself into one or more companies in another EU Member State or States. Such a reorganisation was not legally possible prior to the introduction of this Directive and this new possibility opens up new ways of restructuring groups of companies.
Generally, in a division, the assets and liabilities of the company being divided are transferred to another ‘recipient’ company and as compensation for parting with the assets, the shareholder/s of the company being divided obtain shares in the ‘recipient’ company.
A cross border division can either be ‘full’ or ‘partial’ in nature. In a full division, the company being divided ceases to exist and all its assets and liabilities are transferred to two or more recipient companies. In a partial division, as the name implies, only part of the assets and liabilities of the company being divided are transferred to one or more recipient companies and the company being divided remains in existence. A partial division can also be a division by ‘separation’ where the main difference is that it would be the company being divided, rather than its shareholder/s, that would obtain shares in the recipient company or companies.
A cross border division by separation could be the ideal solution where a single company would have expanded into a different jurisdiction by initially setting up a mere presence such as a mere representative office and the subsequent success in such jurisdiction justifies the setting up of a stronger presence in the form a subsidiary. Also, a division would be useful where the company takes a strategic decision to exit a particular market, industry or line of business.
Taxation aspects must be evaluated when considering a cross border division. Such divisions fall within the scope of the tax related EU Directive 2009/133/EC which could result in no taxation upon carrying out the division if all conditions are satisfied.