As businesses grow, it is natural for their operational needs, ownership goals, or market environment to evolve over time. Eventually, the existing structure may no longer serve the company’s objectives effectively, making it necessary to rethink the setup. This is when a well-planned corporate restructuring can come into play—going far beyond administrative formalities. It can become a strategic tool to simplify operations, optimize tax considerations, or lay the foundation for future growth.
Restructuring is not merely a formal or administrative step—it carries complex legal, accounting, and tax implications. At the same time, it creates opportunities:
- to simplify operations,
- to allocate assets more efficiently,
- to align and structure ownership interests,
- and to prepare for future transactions.
The Most Common Forms of Corporate Restructuring
Demerger – Separation of Business Units or Assets with Legal Succession
In a demerger, part of a company is separated and continues to operate as a new legal entity, while the original company remains in existence. Legally, this is a form of corporate division.
Typical Objectives:
- separation and independence of business units,
- establishing a separate ownership structure for specific activities,
- asset protection (e.g., outsourcing real estate holdings),
- preparation for company sale or investor entry.
In certain cases, a demerger may offer a more efficient solution than transferring business units or assets through separate contractual agreements—especially when carried out as a preferential transformation, ensuring the tax neutrality of the transaction.
Merger by Absorption – Simplifying Structure and Reducing Costs
The essence of a merger by absorption is that two companies combine their operations, with one company ceasing to exist and fully merging into the other. The surviving company assumes the activities, assets, and liabilities of the absorbed entity.
It may be justified when
- the independent operation of a subsidiary or acquired company is no longer justified,
- the goal is to reduce administrative and operational costs,
- it is necessary to eliminate intercompany receivables and liabilities,
- enables more efficient utilization of assets within the corporate group.
A merger by absorption offers significant simplification, reduces the additional administrative burden arising from parallel operations, and creates an opportunity for a more streamlined and cost-efficient structure.
Demerger by Absorption – Complex Business Restructuring
A demerger by absorption is a special form of corporate restructuring that combines elements of both demerger and merger. One part of the company is separated and merged into another existing company, while the remaining part continues to operate as an independent legal entity.
Practical Advantages:
- reorganization of business units between existing companies,
- consolidation or separation of assets through a single transaction,
- streamlining transactions or operations in a tax-efficient manner.
Since a demerger by absorption involves two operating companies, the process is not necessarily simpler—it entails more administration and involves more complex tax and legal considerations. Nevertheless, this solution can be highly effective in optimizing corporate structure and achieving long-term strategic objectives.
Change of Corporate Form – Rethinking Legal Structure
A change of corporate form occurs when a company alters its legal form (e.g., from a limited liability company to a private company limited by shares), while retaining its legal personality. This transformation brings with it a new regulatory framework, changes in organizational operations, and revised accounting procedures.
It may be justified:
- when bringing in an investor,
- to launch employee ownership programs (e.g., ESOPs, employee share schemes),
- when introducing a new business model or management structure.
During a change of corporate form, the legal entity remains the same, but significant internal regulatory, decision-making, and accounting adjustments are required—especially in cases involving employee share schemes or the involvement of external investors.
Tax Perspective: Preferential Transformation
A key consideration during restructuring is whether the process qualifies as a preferential transformation, as this:
- allows for tax base-neutral asset transfers from a corporate income tax perspective,
- may also provide VAT and duty (stamp duty) exemptions, depending on the circumstances.
To safely take advantage of the available benefits, it is essential to strictly comply with the relevant regulations and fulfill all formal requirements. Proper execution is especially important in cases involving market valuations or complex transactions.
When Is It Advisable to Decide on a Corporate Restructuring?
For companies preparing calendar-year financial statements, it is advisable to make the restructuring decision no later than June 30. This allows the draft statement of assets and liabilities to be based on the annual financial statements, avoiding the need for a separate accounting closing.
Restructuring can still be carried out after June 30, but the timing, planning, and execution typically become more complex.
What Should You Pay Special Attention To?
Corporate restructuring is a complex, multi-step process that requires the preparation of numerous legal, accounting, and tax documents and decisions.
Key Steps:
- Preparation of the restructuring plan and shareholder resolutions
- Preparation of draft statement of assets and liabilities and inventory lists
- Engagement and certification by an independent auditor
- Preparation of legal documents (registration papers)
- Mapping and optimizing tax implications
Thorough preparation and the involvement of experienced experts are fundamental prerequisites for a successful restructuring.
How Can We Help?
Restructuring is always a significant step, which is why it is advisable to entrust planning and execution to experts. With extensive experience in successfully completed projects, we support our clients—from tax and accounting planning to the preparation of statements of assets and inventories, and coordination of audit processes. Additionally, we assist in preparing restructuring documentation and legal materials.
Our goal is to ensure that the restructuring process proceeds smoothly, efficiently, and with optimal tax outcomes—whether it involves a demerger, merger, or change of corporate form.
This blog post was written by Tamás Mendöl, Senior Tax Advisor at ICT Business Advisory Zrt.
