Term designating the division of a formerly single firm (in practice usually a partnership) into two: a holding company and an operating company. The original firm remains as the holding company, while a joint-stock company (Kapitalgesellschaft), usually in the legal form of a private limited company (GmbH), is formed as the operating company which carries on the original firm's specifically business activity and to which plant and machinery are made over (e.g. by leasing) for the purpose. For (almost) all of the original firm's employees, the latter becomes their new employer. The motives underlying company split-ups at establishment level are usually tax considerations and/or risk limitation. A distinction must be made between this form of split-up and the process of transformation referred to as company split-up (Unternehmensteilung). In the latter case (which mainly occurs with larger joint-stock companies), the functions which were formerly grouped together under the one company operator are assigned to separate legal entities. For example, production, purchasing, warehousing and administration may each be transferred to an individual legally independent company; alternatively, if the company has different product ranges the individual ranges may each be assigned to an independent legal entity. From then on, the original company fulfils only the function of group management. The process of separating off the establishments and departments concerned and upgrading them into independent companies is normally effected by way of a non-cash capital contribution. Here too, the motives are usually tax or organizational considerations or risk limitation.

Both the process of company split-up at establishment level and that of company split-up raise a number of labour law issues regarding, in particular, the possible weakening of employee protection. Since both axiomatically entail a transfer of undertaking, the reader is referred to that entry for further information on their specifically labour law aspects.

Please note: the European industrial relations glossaries were compiled between 1991 and 2003 and are not updated. For current material see the European industrial relations dictionary.