A demerger is a corporate restructuring strategy where a large organisation splits into two or more independent entities. This is done to improve operational efficiency, unlock business value, or focus on core areas. Unlike mergers, where companies combine, demergers result in the creation of separate companies, each operating on its own. The parent company may transfer a division, business unit, or subsidiary into a new legal entity. The goal is to give each entity the freedom to grow independently, respond better to market conditions, and attract more focused investment. Demergers are common in both Indian and global corporate landscapes.
How do demergers work?
Demergers occur when a company strategically separates parts of its operations to form new, standalone businesses. The aim is to allow each entity to operate independently and achieve better financial and operational performance. The process is regulated and typically requires shareholder and board approval.
Businesses undertaking such strategic moves may benefit from financial assistance—check your pre-approved business loan offer to access hassle-free funding during the process.
Steps involved in how demergers work:
- The parent company identifies a division or subsidiary to separate.
- A legal and financial structure is established for the new entity.
- Shareholders of the parent company receive shares in the new company.
- The demerged unit becomes an independent entity with its own management.
- Regulatory filings and approvals are completed before listing or operating.
- The businesses operate independently post-demerger with defined strategies.
