Demerger as a Form of Corporate Restructuring in Nigeria 

Corporate restructing in Nigeria

The demerger is one of the corporate restructurings in Nigeria. When a company needs to restructure as a corporate body, there are various types of approach to it based on the form of restructuring the company or business chooses to undergo. This article focuses on demerger as a form of corporate restructuring in Nigeria. Hence, we will examine its meaning and how the process is.

However, before looking at that, what is corporate restructuring? The subheading below answers that.

What Is Corporate Restructuring?

Corporate restructuring in Nigeria and other countries simply refers to the process of reorganizing a company’s operations, management, and finances to improve the overall efficiency and effectiveness of the business.

There are various forms of corporate restructuring but in this article, we focus on Demerger. The next subheading defines Demerger.

What Is Demerger?

A demerger is a type of corporate restructuring in Nigeria, in which one or more components are created from the entity’s business operations. This is the opposite of a merger or acquisition.

Section 7(a) of the 2019 Finance Act which amended Section 19 of the Companies Income Tax Act (CITA) removed the hurdle encountered by companies who operate a parent-subsidiary structure, which is usually informed by a demerger. 

The erstwhile provision of CITA does this by subjecting organizations with such a structure to double taxation under the excess dividends tax rule which applies to dividends paid out of their retained earnings and franked investment income. 

The 2019 Finance Act simply took away this hurdle by exempting from the excess dividends rule, dividends paid out of retained earnings, and franked investment income.

In conclusion, this development brought about a favorable landscape for organizations that wish to restructure along the lines of a demerger.

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