Most companies are incorporated as a legal entity such as a BV or NV. When a company grows, the need may arise to incorporate part of the company into a separate company, as an independent part of the organisation. There are various ways to achieve this, for example, by an assets/liabilities transaction or a legal division.
There may also be other motives for splitting off part of the organisation. Think, for example, of spreading the risks of different activities over different companies or splitting up the company because of a quarrel between the shareholders.
Transfer under universal title
One characteristic of a legal division of a legal entity is that all rights and obligations that are to be transferred to the acquiring legal entity are transferred ‘automatically’. In legal jargon, this is called ‘transfer under universal title’. This means that it is not necessary to ask the contracting parties for their cooperation.
Split-off and split-up
There are various forms of legal division, which are also referred to as ‘split-off’ or ‘split-up’. The possibility exists to let the existing legal entity continue to exist after a legal division. Another possibility is to incorporate all the business units into new legal entities and to let the old legal entity disappear. The consequences of a legal split-off and a split-up can be very different, which is why good advice is essential.
Please note: legal division is not a panacea that can be used to get rid of existing debts or to remove part of the assets from the reach of creditors. The law provides that both the remaining legal entity and the (new) acquiring legal entity are liable to fulfil the obligations that the splitting legal entity had at the time of the division.
The division variants are subject to different procedural rules relating to the decision-making process, their publication (in the commercial register and by announcement in a national newspaper) and to their execution.
In all cases, legal division is precision work that requires the knowledge and expertise of a civil-law notary. Please feel free to contact one of our specialists in legal division for an exploratory discussion. We will be happy to assist you.