What is demutualization?

demutualization is a process of transforming mutually owned companies into a shareholder. This type of conversion usually takes place when the company has grown to the extent that it wishes to issue shares as a means of expanding the company in some way. Browsing through the procedure of demutualization often helps prepare the ground for the initial public offer (IPO).

Company and Company owned by shareholders

Mutual society, sometimes called a cooperative, is a company that is owned by its customers; This structure is most common for organizations such as Cooperative Backup and Insurance Companies. Given that customers are owners, the idea that society as the highest priority acts with the good of their clients. Many everyday operations of the mutual organization are the same by any other company because it provides financial services, insurance contracts or what products are specific to their clients. Mutual societies publicly mutual municipalitiesfeasting shares. Shareholders buy shares of shares, so they will become a part of the company. This is a very desirable position for many companies, as this can help generate a significant amount of capital that allows society to grow in a way that the corporation remained privately held.

Why would society demutualize

For operation, every company must have capital; Mutual companies increase this capital from their members, through insurance premium payments, deposits of a credit union or other method. If its members are not or cannot provide sufficient capital for operation or expansion, the mutual company may decide to go through the process of demutualization in Neboder in other ways, especially through the sale of shares to the public. Mutual companies are ideally for the benefit of their customers, not with Pa rimar goal to make money; By becoming more efficient and capable of generating the necessary funds.

Depending on the circumstances, the demutualization process may take place in a short period of time or occurs within a few years. In general, any company that considers this type of conversion will take time to consider the benefits of converting against potential obligations that may occur. Once the company finds that the benefits outweigh the possible disadvantage of conversion, the escalating strategy is determined to ensure that any legal and operational aspect of the demutualization process is solved in time and efficiently. The approval of the government agency is often required than the company can demutualize.

Demutualization types

There are three main types of demutualization:

• full demutualization
• Mutual Holding Company
• sponsored demutualizatone

in full demutualizationST becomes a shareholder. Customers - often called members - usually receive supplies in this new company or have different or other compensation as owners. Ownership in the company is now separated from the client and all new customers will not become the owner; Shareholders can continue to own even if they are not clients.

Mutual holding company is a variant full of demutualization. In this structure, the members still own part of the company, but another part becomes public. The mutual part of the company may own some or all shares in the public part or that part of the company may be publicly traded. This structure is not allowed in all jurisdictions.

Sponsored demutualization includes a third -party company that funds demutualization and has a control share of the transferred company. The third party buys most or all shares in a mutual company, basically buy it and members receive compensation in the formshares or cash from this shopping company.

How demutualization affects customers

From a strictly customer's perspective, demutualization should not affect the company's regular business. If financial institutions are demutualized, checks and savings accounts of customers will still exist as before, as well as any loans, mortgages and other products. Someone who has policy with the mutual insurance company that will be publicly published will still be covered. This does not mean that the rules or possibilities for customers will not change; Fees could be added or new financial products can be offered by a transferred company.

For its members, the transformation could bring immediate volume-third benefits to a public society. All members receive some compensation, including shares in the transferred company, cash payments or some combinations of these two. If a member becomes a shareholder, the conversion may continue to be mined if the value of the shares increases.

However, there is a possibility that customers will experience a reduction in customer service since the transferred company. Fees may increase or introduce principles that benefit companies rather than a client. Given that the focus of a publicly traded company is generally to generate profits for shareholders than to provide the greatest benefits to its members, customers may find that the company does not respond to their needs.