The spin-off is a legal procedure that consists of dividing in whole or in part the assets of a corporation called “the spun-off company,” and transferring them to an existing company or one created as a result of the spin-off, called the “corporate beneficiary.”
The spin-off can be partial or total, i.e., all of the spun-off company’s assets can be transferred in favor of the corporate beneficiaries, or only some of them. It is a requirement of the spin-off procedure that the shareholders of the spun-off company are the same shareholders of the corporate beneficiary. However, it can also be the case that the corporate beneficiary is a 100% owned subsidiary of the spun-off company.
The shareholders of the spun-off company can approve the transfer of all or part of the assets of the spun-off company, individually or in masse, to the corporate beneficiary. They may also agree on the transfer or not of liabilities of the spun-off company, the transfer of participation quotas or shares of the corporate beneficiary, the number of participation quotas or shares that correspond to each shareholder of the spun-off company and the corporate beneficiaries, and the approval of the articles of incorporation of the corporate beneficiary, in case this is a new corporation. No shareholder may lose shareholder status due to the spin-off, unless there is consent from the respective shareholder.
To execute a spin-off, the following is required:
- Shareholders’ minutes of the spun-off company approving the spin-off (and minutes of the corporate beneficiaries, in case they already exist). These minutes are registered in the Public Registry of Panama.
- Notice to the Directorate General of Revenue (DGI) of the spin-off within the 30 days prior to its perfection. For this process, a written notification is submitted to the DGI along with the minutes of the shareholders of the participating companies, the personal identification of the legal representative of the spun-off company, and a certificate of the same issued by the Public Registry.
- Publication in a local newspaper of a certification issued by the Registry regarding the spin-off registration.
Once the spin-off is registered at the Public Registry, the corporate beneficiaries will take over the rights and duties that correspond to them based on the spin-off terms and related to the transferred assets (from the moment they were created and acquired by the spun-off company), under the same terms and conditions. The corporate beneficiaries will be jointly and severally liable to the creditors of the spun-off company for the fulfillment of their credits if the transfer is detrimental to the creditors.
The transfer resulting from a spin-off is not considered a taxable event for tax purposes, provided that it is for an amount equal to the value of those assets in the accounting records of the spun-off company.
Cristina de Alba
Attorney of Alcogal
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