Spin-off: Executive Summary

By spin-off, a (transferring) company assigns all of its assets and liabilities, or a part thereof, to one or several (acquiring) companies. As a mandatory consideration for this assignment, each shareholder or partner of the transferring company receives a corresponding share (including voting rights) in the acquiring company or companies. Conversely, the simple transfer of assets and liabilities does not imply a transfer of voting rights in the acquiring company.

The Merger Act allows a spin-off for share corporations, corporations with unlimited partners, limited liability companies (“GmbH”) as well as for cooperatives. These legal entities may function as transferring as well as acquiring companies. Companies of different legal forms may be involved: Thus, a corporation may split, for example, into a limited liability company or a cooperative.

For setting up the spin-off transaction, three possible choices exist (see a-c):
a) Future of the transferring company:
- The transferring company may split all its assets and liabilities into two or more parts and may transfer these to other companies, in which the shareholders or partners of the transferring company receive a corresponding share including voting rights. At this stage, the transferring company is left without any assets and liabilities; it is dissolved and deleted from the Commercial Register. This procedure is called spin-off with dissolution of the transferring company.
- Alternatively, the transferring company may split only a part of its assets and liabilities to other companies, in which the shareholders or partners of the transferring company receive a corresponding share including voting rights. The transferring company continues to exist, since not all assets and liabilities are disposed of; the transferring company is left with some of its original assets and liabilities. This procedure is called spin-off.

b) Existing or newly established aquiring company:
- The assets and liabilities may be transferred to already existing acquiring companies (so-called spin-off for takeover).
- The assets and liabilities may be transferred to companies newly established in the spin-off (so-called spin-off with establishment of a new company). In doing so, the specific provisions regulating the formation in the company law have to be observed.

c) Allocation of the shares, including voting rights:
- Upon symmetric spin-off, the shareholders or partners of the transferring company receive a share including voting rights in the acquiring company that correspond to their prior participation in the transferring company.
- Upon asymmetric spin-off, the shareholders or partners of the transferring company receive a share including voting rights in all acquiring companies or only in a single acquiring company. Here, their share and voting rights may be modified and thus will no longer correspond to their prior participation in the transferring company.
Based on these options, a spin-off may be designed according to the individual needs of the parties, keeping in mind the structural adjustment of the involved company or companies.
Upon entry into the Commercial Register of the spin-off, the transferred assets and liabilities readily pass to the acquiring company. The specific regulations for the transfer of single assets or liabilities (such as public registration of the sale of real estate) do not apply. As a matter of practicality and to facilitate the structural adjustment intended by the Merger Act, one may assume an automatic transfer of all the company’s other legal relationships, including contracts with third parties.

Unlike the transfer of assets and liabilities, the spin-off includes a transfer of not only pecuniary, but also of membership rights: The shareholders or partners of the transferring company receive from the acquiring companies corresponding shares and voting rights. As opposed to mergers, the acquiring company, in a spin-off transaction, may not pay an indemnification instead of granting a share and voting rights. Upon asymmetric spin-off, the membership continuity is limited since it allows an allocation of shares or voting rights which may not correspond to the allotment that existed in the transferring company. Thus, the shareholders or partners may get shares and voting rights in all acquiring companies, which, however, may differ from their relative share and voting power in the transferring company.

As a rule, the spin-off is connected with a capital reduction of the transferring company. Upon spin-off for takeover, the acquiring companies will very often have to increase the capital, whereas during the spin-off with establishment of a new company, the formal requirements to establish the company form chosen by the parties shall always be observed. Procedurally, a spin-off requires the following documents and decrees:
- Based on the most recent financial reports, the executive bodies of the involved companies – as basis of the spin-off – shall establish in writing a spin-off agreement or a spin-off plan. It’s content will be legally stipulated. Spin-off with establishment of a new company is an unilateral legal act of the executive body of the transferring company. Therefore, a spin-off plan is different from a bilateral spin-off agreement to which the executive body (or bodies) of the acquiring company (or companies) shall agree.
- The assets and liabilities to be transferred shall be listed in an inventory that shall present a net surplus. The employment contracts being transferred with the spin-off shall be specified.
- In a common or in each separately edited and written spin-off report(s), the executive bodies of the involved companies shall explain and clearly state the reasons for the planned transaction.
- Balance sheet(s), spin-off agreement, or spin-off plan and spin-off report(s) shall be examined by a specially qualified auditor.
- Spin-off agreement or spin-off plan, spin-off report(s), and audit report shall then be disclosed, together with the corresponding final reports, at the corporate domicile of the involved companies to the shareholders’ or partners’ attention.
- Finally, the general meeting shall resolve all issues regarding the spin-off.
- Upon consent by the general meeting, with the required quorum, the spin-off takes effect with the entry into the Commercial Register. Upon spin-off, the transferring company is simultaneously deleted.

Unlike merging, spin-off deprives the transferring company’s creditors of a part of the hitherto existing assets to cover the liabilities. Because of this increased risk for the creditors, the legal validity of the spin-off is partly subject to protective measures.
- The creditors may ask for collateral prior to the resolution of the general meeting.
- The creditors shall be informed about the planned spin-off by notification, published three times in the Swiss Commercial Bulletin (call to the creditors for the filing of claims).

In addition, all companies participating in the spin-off are subject to both a subsequent and a continued liability (before the spin-off) of all personally liable partners of the transferring company for claims which may have been reallocated by the spin-off itself. Analogous protection provisions also exist for the employees’ claims. In addition, the transfer of employees is subject to special rules.

Finally, the Merger Act provides more relaxed rules for small and medium-sized enterprises (SME).

The provisions regulating spin-offs can be found in Arts. 29 - 52 Merger Act.

Suggested citation:
Hans Caspar von der Crone / Andreas Gersbach / Franz J. Kessler / Martin Dietrich / Claudia Fritsche / Katja Berlinger, www.fusg.ch - die Internetplattform zu Fragen des Transaktionsrechts, <http://www.fusg.ch/en/trans/spinoff/index.php?datum=2003-08-22>, status: Aug. 22, 2003, visited May. 18, 2012.