The new possibilities of the legal division are interesting. There are two types of division: the absolute division and the split-off. Where we use the abbreviation N.V. same goes for a B.V..
With an absolute division the entire capital of the existing N.V (f.i. A N.V.) passes over to two or more other N.V.’s or B.V.’s (f.i. B N.V. and C N.V.) which can be created on the occasion of the division if desired. The shareholders of A. N.V. become shareholders of B N.V. and C N.V and A N.V. ceases to exist.
It is also possible within the frame of an absolute division that the splitting N.V. (A N.V.) acquires all the shares of B N.V. and/or C N.V, in which case A N.V. continues to exist.
In case of a split-off only a part of the assets and liabilities of an N.V. (f.i. D N.V.) is transferred to two or more other N.V.’s or B.V.’s (f.i. E N.V and F N.V.) Either E N.V. or F N.V. or both have to issue shares to D N.V. or its shareholders. As in the case of the absolute division it is possible to pass the assets and liabilities over to existing N.V’s or to N.V.’s that are founded at the splitting.
To prevent abuse of the legal splitting, it is required by law that the net worth of the assets and liabilities that any N.V. acquires is not negative. The same holds for the net worth that stays in the splitting N.V.
The procedure of a splitting looks rather complicated, but we have to take into account that without this legal possibility, it would be a lot more difficult and complicated to get the same result, if possible.
A division (whether an absolute one or a split-off) can only be executed by a notarial deed.
The Board of Management has to prepare a detailed proposal for the splitting, containing a.o.:
– the legal form of the receiving corporation
– the articles of incorporation (statuten) of both the splitting and the receiving N.V.’s. In case the receiving N.V.’s will be created at the occasion of the splitting, a draft of the deed of incorporation (ontwerp van de akte van oprichting).
– whether all the assets and liabilities will be transferred or only a part of them
– a detailed description of the assets and liabilities each receiving N.V. will acquire, and the same for the assets and liabilities that will remain in the splitting N.V. (if any).
– the value of the part of all the assets and liabilities that any of the receiving N.V.’s will acquire and the value of the part of all the assets and liabilities that remain in the splitting N.V (if any).
– the intentions about the composition of the Board of Management of all the N.V.’s concerned.
– the intended measures as regards the acquisition of shares in the receiving N.V.’s by the current shareholders of the splitting N.V.
The Board of Management has to state in writing the reasons for the division and the expected consequences for the activities with an explanation from a juridical, business and social point of view.
This proposal should be presented to the Chamber of Commerce with the latest three approved annual accounts. In case the latest fincancial year for which annual accounts have been adopted, has expired more than six months before, the Board of Management has to compile a interim statement of assets and liabilities. The division should be announced officially in the “Publicatieblad van de Nederlandse Antillen” and a local newspaper.
Within a month after this publication, any creditor or other contractual party can lodge an objection against the intended division. The judge decides on such an objection.
The decision to divide or split the N.V. has to be taken by the general meeting of shareholders, at least a month after the official announcement of the division. The same formalities and the same majority rules apply as in case of a change of the articles of incorporation.
All N.V’s that take part in the division are liable for the performance of contracts of the splitting N.V.
Unless the articles of incorporation rule otherwise, an existing receiving N.V. can decide to agree with the division by a decision of the Board of Management. The same holds for the splitting N.V. if all receiving N.V.’s are founded on occasion of the splitting and the splitting N.V. will become their only shareholder. In that case it is not necessary to include in the proposal for the splitting a detailed calculation of the exchange ratio of the shares, approved by a registered account. This would be necessary in the case of existing N.V’s that receive assets and liabities.
The assets and liabilities of the splitting N.V. are transferred to the acquiring N.V.’s and, withour further regulations, this would cause taxable profit if the net value thereof is higher than the book value, except in case the acquiring N.V.’s exist already and all are part of a fiscal entity together with the splitting N.V.
In the near future a regulation is expected for the merger and division as regards the passing on of reserves (hidden and fiscal) and goodwill to the acquiring N.V.’s comparable to the existing regulation for the transition of assets from a sole proprietorship to an N.V. The aforementioned regulation holds that the difference between market value and book value of the business that is brought into the N.V, is exempted from income tax on the condition that the N.V. that continues the business, will apply the same valuation principle and the same book values of the assets and liabilities (including goodwill) as they had in the sole proprietorship. This means that the N.V. has to apply lower depreciations during the depreciable life of the assets than in the case wherein it could value those assets (including goodwill) at the takeover price, as would be sound commercial practice.
After the division, the dividing N.V. (if it continues to exist and acquires the shares in the receiving N.V.’s) can apply the participation exemption when it sells the shares in the receiving N.V.’s. The shares should not be sold within a three year period though, because in that case the division is supposed not to have taken place for business purposes, and the facilities for the division will not be applicable, unless business purposes for the division can be proved or made plausible.
But at the moment there is no such a regulation for the merger nor for the division. For this reason, it is necessary to negotiate with the tax authorities to assure a division without fiscal problems.
For the immovable property of the dividing N.V. the transfer tax has also to be taken into account. At this moment there is no provision in the transer tax for the transition of immovable property in within the framework of a legal division. The N.V. that acquires immoval property during the division, would owe this tax according to the letter of the law, which amounts to 4%. But we have a notarial commitment that the transfer tax is not applicable in case of a division.
As far as the sales tax is concerned, there is a regulation for the transfer of a business that dates from 2001, years before the introduction of the legal merger and division. But the wordings of it are rather general and this regulation seems to be applicable to legal merger and division.
We have advised on splitting a company in a case where 2 siblings were shareholders in an N.V. with sizable assets. The siblings differed in opinion on how to proceed so we made two separate N.V.'s out of one so that both could go their merry way.