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:

  1. 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.
  2. 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.
  3. 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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