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Common forms of TNC divestment and legal risks
source：www.zchlhls.com | Release time：2024年08月03日Legal risks of multinational company divestment
First, the common forms of multinational corporations divestment
Multinational corporations divestment in various forms, common forms include:
Liquidation: This refers to the termination of a multinational corporation's operations in the host country and the realisation of its assets in the host country to repay its debts and distribute its remaining assets to its shareholders. Liquidation is a more radical form of divestment and is usually applied when a TNC decides to withdraw permanently from a country or region.
Sale: This refers to the sale of all or part of a TNC's assets in a host country to a third party, including other companies, individual investors or the government. A sale is a common form of divestment for TNCs, helping them to quickly recoup their capital and avoid the complexity and cost of liquidation procedures.
Closure: This refers to the closure of one or more branches, factories or offices of a TNC in a host country. Unlike liquidation and sale, closure is usually a restructuring of the TNC's operations in a particular business sector or region, and does not necessarily imply the TNC's complete withdrawal from the country's market.
Restructuring: This refers to the reorganisation of a TNC's operations in a host country, such as mergers, demergers, transfers of equity, etc. It can help the TNC to optimise the allocation of resources. Restructuring can help MNCs optimise resource allocation and improve operational efficiency, but may also involve complex legal procedures and tax issues.
Transfer Pricing: This refers to the practice of a multinational corporation to transfer its profits to a country or region with a lower tax burden by manipulating the prices of related transactions. Transfer pricing is a form of tax avoidance and may be subject to investigation and penalties by the tax authorities of the host country.
II. Legal risks of multinational corporations' divestment
Multinational corporations need to pay attention to the legal risks associated with divestment and take measures to prevent them. The following is a list of common legal risks:
Labour law risk: multinational companies in the divestment, need to properly deal with the issue of staff resettlement. If not handled properly, it may lead to labour disputes or even lawsuits. For example, it is necessary to pay economic compensation and fulfil the obligation to give advance notice in accordance with the law.
Tax Risks: MNCs need to pay attention to relevant tax regulations to avoid losses due to tax issues when divesting. For example, they need to pay income tax and value-added tax in accordance with the regulations and deal with transfer pricing issues appropriately.
Environmental protection risk: If a multinational company pollutes the environment in the course of its operations, it needs to bear the corresponding environmental responsibility when divesting. For example, it needs to carry out environmental remediation and pay compensation for environmental damage.
Anti-monopoly risk: If a multinational company divests, it needs to comply with relevant anti-monopoly laws and regulations if it involves market competition. For example, they need to avoid abusing their dominant market position and obtain approval from the antitrust authorities.
III. Summary
Divestment of MNCs is a complex business decision that requires comprehensive consideration of various factors. When making divestment, MNCs need to understand the relevant laws and regulations and consult professional legal and financial advisors to avoid legal risks and safeguard their legitimate rights and interests.
This article is for reference only and does not constitute legal advice. If you have any legal questions, please consult a professional lawyer.
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