Spin-Offs & Carve-Outs

Introduction: What are Spin-Offs and Carve-Outs?

Spin-offs and Carve-outs are forms of corporate restructuring where a company separates one of its business lines or divisions into an independent legal entity. In Georgia, this process is legally known as reorganization via division (separation). In a spin-off, shares of the new entity are distributed to existing shareholders (pro-rata). In a carve-out, the parent company often sells a portion of the new entity's shares (e.g., via an IPO) or retains a controlling stake. This strategy is used when a company wants to focus on its core business, divest non-core assets, or unlock shareholder value by allowing a specific division to develop independently.

What Does This Service Cover?

Separating a business requires surgical precision in legal and financial matters. The service includes:

• Structure Design: Deciding which form is optimal (spin-off, carve-out, or direct asset sale).
• Drafting Reorganization Plan: Detailed allocation of assets and liabilities to be transferred to the new company versus those remaining in the old one.
• Creditor Protection: Informing creditors and developing mechanisms to satisfy or secure their claims (as joint liability applies during division).
• Labor Relations: Transferring employees to the new company in compliance with the Labor Code.
• Licenses and Permits: Managing the process of transferring or re-obtaining licenses necessary for the business.
• Intellectual Property: Segregating rights to brands, patents, and software.

Common Real-World Scenarios

Companies turn to division in the following cases:

• Divesting Non-Core Assets: A holding company owning both construction and hospitality businesses decides to spin off the hotel division into a separate company to sell it later.
• Partner Separation: Shareholders have different visions and decide to split the business so each can manage their share independently.
• Attracting Investment: A strategic investor is willing to invest only in a specific tech product, not the whole company. A "carve-out" of this product into a separate legal entity is performed.
• Risk Isolation: Separating high-risk activities to protect the core business from potential losses.

Georgian Legal Framework

The process is regulated by the Law of Georgia on Entrepreneurs, which defines reorganization types: division (split-up) and separation (spin-off). In a separation, the existing company continues to exist, while one or more new companies are separated from it. The law strictly protects creditors: companies participating in the reorganization are jointly liable for obligations that existed before the reorganization (for a statutory period). The Tax Code of Georgia determines the tax regime for asset transfers. Typically, asset transfers within a reorganization are not considered a supply and are exempt from VAT/profit tax if the continuity principle is observed.

Service Process

The process involves:

1. Preparatory Stage: Preparing the draft terms of division (balance sheet of asset allocation).
2. Shareholder Decision: Holding a meeting and approving the reorganization.
3. Publicity: Publishing the statement on the Registry portal and notifying creditors.
4. Registration: Registering the new company (or companies) in the Public Registry.
5. Operational Separation: Actual transfer of bank accounts, contracts, and employees.

Why Use Legal.ge?

A business spin-off is technically more complex than formation because it requires a precise "surgical" separation of existing liabilities and assets. A mistake in asset allocation can lead to tax fines or disputes with creditors. Legal.ge specialists ensure a smooth process so that your business continues uninterrupted under the new structure.