Demutualization is the approach that is utilized to convert a mutually owned company into a shareholder owned company. This type of conversion usually takes place when a company has grown to the point that it wishes to issue shares of stock as a means of expanding the company in some manner. Going through the procedure of demutualization helps to set the stage for making an initial public offering or IPO.

Not everyone understands the difference between a mutual company and a stock or share company. While the day to day operations may be the same, the key difference has to do with who has ownership in the company. With a mutual company, the control of the company is vested in a small group of investors who often set company policy and procedures. The mutual company does not issue publicly traded stocks.

A share or stock company model does issue shares of stock that are available through one or more stock market exchange. Shareholders purchase the shares of stock and become part owners in the company. This is a highly desirable status for many companies, as it can help generate significant amounts of revenue that make it possible for the company to grow in ways that would not be possible if the corporation remained privately held.

Depending on the circumstances, the process of demutualization may take place in a short period of time or occur over several years. Generally, any company that is considering this type of conversion will take time to thoroughly weigh the advantages of undergoing demutualization to the potential liabilities that may occur. Once the company has determined that the benefits outweigh the possible disadvantages of the conversion, an escalation strategy is established to ensure that every legal and operational aspect of the demutualization process is handled in a timely and efficient manner.

Demutualization is not an approach that only applies to company ownership. In recent years, many stock exchanges have also made the migration to being structured along the lines of a share company. Such venerable exchanges as the New York Stock Exchange, the London Stock Exchange, and the Toronto Stock Exchange have either completed the migration or have taken steps toward demutualization.