The Process of Separation of a Legal Entity: Q&A

In order to organize their further business activities, legal entities sometimes refer to reorganization processes, in which the separation is of practical importance.

What is the separation of a legal entity? 

Separation is one of the types of reorganization of a legal entity. In case of separation, the legal person maintains its existence, but one or several legal persons are separated from it. Moreover, in this case, a part of the rights and obligations of the reorganized legal entity are transferred to the newly created legal entity or entities.

When may the reorganization of a legal entity through separation be necessary?

Reorganization through separation takes place in practice by optimizing the structure of the existing legal entity in order to separate the directions of the company’s activities or engage in other types of activities.

What are the legal consequences of separating a legal entity?

The newly created legal entity or entities have their own management structure, corporate name, separate organizational and legal structure. As for their rights and obligations, the latters are transferred to the newly created legal entity or entities in accordance with the balance sheet of the existing legal entity. The balance sheet must ensure the proportional distribution of assets and liabilities corresponding to the shares of the shareholders of the newly created companies in the authorized capital of the reorganized company between the companies created as a result of the reorganization.

Separation or division?

Despite the similarities between separation and division, that is, the decentralization of legal entities and the creation of new entities, they differ significantly from each other. Unlike the separation, in case of division, the reorganized company ceases to exist. In addition, in case of division, all the rights and obligations of the reorganized company are transferred to the newly created company.

What will you need during the process of separation?

Like any type of reorganization, reorganization through separation is a complex and multi-stage process. Each stage of separation has its own characteristics, ignorance of which can lead to unintended consequences: missed deadlines, violations of procedures, even rejection of a corporate deal, which in turn can lead to unnecessary delays.

In order to avoid such a situation, it is necessary to contact the relevant professionals. Having extensive experience in this field, our team is ready to provide legal support to properly organize the separation process of a legal entity and avoid difficulties in the future. Our company’s specialists provide the following services in the field of separation:

  • Legal consultancy in all stages of reorganization through
  • Preparation of necessary documents: Charter, balance sheet, decision of the participants of the legal entity being reorganized through separation or decision of the body authorized for this purpose by the charter.
  • Advisory at all stages of preparing the balance sheet in order to bring it into compliance with RA legislative requirements.
  • Registration of a separate legal entity or entities.

Contact our team to get custom-tailored and professional advice on your case!


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