Demerger: Executive Summary

By a demerger, 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. And in contrast to a merger, no compensation payment may be offered.

The Merger Act allows demergers 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 and a cooperative. For all other forms of entities, a transfer of assets is the most suited resource to fall back on when a demerger is legally not allowed.

Demergers are not simply the opposite of mergers, although the name might imply it and although their explication is sometimes reduced to that term. In fact, due to the many structuring forms demergers can take (see right below), they are usually far more complex and can be very demanding in detail.

For setting up the demerger transaction, possible choices exist with respect to three criteria (see a-c):

a) Future of the transferring company:

• Split-up (“Aufspaltung”): 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 (without being formally liquidated) and deleted from the Commercial Register.


• Spin-off (“Abspaltung”): Alternatively, the transferring company may split only a part of its assets and liabilities to one or several 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 with some of its original assets and liabilities since not all assets and liabilities are disposed of.

• The assets and liabilities may be transferred to already existing acquiring companies (so-called demerger for takeover).


• The assets and liabilities may be transferred to companies newly established in the demerger (so-called demerger with establishment of a new company). In doing so, the specific provisions regulating the formation in the company law must be observed.

• Upon symmetric (pro rata) demerger, the shareholders or partners of the transferring company receive shares, including voting rights, in the acquiring company that correspond to their prior participation in the transferring company.


• Upon asymmetric (non-pro-rata) demerger, 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, changing their proportional ownership interests. Here, their share and voting rights may be modified and thus will no longer correspond to their prior participation in the transferring company. An extreme case is an asymmetric (non-pro-rata) demerger in which only certain members of the transferring legal entity receive shares in the acquiring company and then surrender their shares in the transferring legal entity.

• Based on the most recent financial reports, the executive bodies of the involved companies – as basis of the demerger – shall establish in writing a demerger agreement or a demerger plan. Demerger with establishment of a new company is an unilateral legal act of the executive body of the transferring company, since there does not yet exist a counterparty. Therefore, a demerger plan is different from a bilateral demerger agreement to which the executive body (or bodies) of the acquiring company (or companies) shall agree. The content of the demerger agreement or demerger plan is, to a large extent, legally stipulated.



• The assets and liabilities to be transferred shall be listed and specified in an inventory. The items being transferred must be described so that they can be clearly allocated. Real estate, securities, and intangible assets must always be itemised. The assets being transferred need not qualify as a business; individual assets, for example a patent, can also be transferred. Particular default rules govern the distribution of unallocated assets and liabilities.



• The employment contracts being transferred with the demerger shall be specified in a list. The primary weight of this list lies with the allocation of employment contract liabilities among the demerger parties and not with the significance for the employees, since the merger act refers quite generally to art. 333 CO regarding transfers of employment relationships.



• In a common or in separately edited and written demerger report(s), the executive bodies of the involved companies shall explain and clearly state the reasons for the planned transaction. Here again, the minimum contents of the report are legally stated. The legal entities may prepare a joint report.



• Balance sheet(s), demerger agreement (or demerger plan), and demerger report(s) shall be audited by a specially qualified auditor. The legal entities involved may appoint a joint auditor. The auditor is required to issue a report expressing an opinion on various matters, for example: whether the exchange ratio is reasonable, whether the methods used to arrive at the exchange ratio are sound, and why the specific method is applied. The auditor, however, does not have to confirm that the transaction and specifically the exchange ratio is “right or wrong.”



• The demerger agreement or demerger plan, demerger report(s), and audit report(s) shall then be disclosed and made available to the shareholders’ inspection at the corporate domiciles of the involved companies. The shareholders are entitled to inspect the demerger documents for 2 months (30 days longer than with a merger or a transformation). The right of inspection shall allow an informed decision of the shareholders on the demerger and, therefore, must take place before the general meeting passes a resolution on the demerger.



• Finally, the general meeting shall resolve all issues regarding the demerger. The supreme governing and administrative bodies involved, however, may not submit the demerger agreement (or demerger plan) to the general meeting for a resolution until the creditor protection procedure (see below) has been completed. The demerger resolution must be notarised. The necessary majorities/quorums are stipulated in the Merger Act; they notably depend on whether there will be additional duties imposed on the shareholders (which requires their unanimous consent). Because an asymmetric merger breaches, or at least endangers the principle of membership continuity, 90% of the members of the transferring entity must approve such form of demerger.



• The demerger takes legal effect with the entry into the Commercial Register. Upon split-up, the transferring company is simultaneously deleted. At this moment, all the assets contained in the inventory are automatically and legally transferred by universal succession to the receiving entity.

• The creditors shall be informed about the planned demerger by notification, published three times in the Swiss Commercial Bulletin (call to the creditors for the filing of claims). This is a prerequisite for the shareholders’ demerger resolution, which can only take place two months after the last one of the three publications.



• The creditors may ask for security collateral prior to the resolution of the general meeting. Security need not be provided if evidence can be presented to show that a claim is not compromised.