Demerger is one form of corporate structuring where a corporation splits a division or unit so as to form a new company. In real life many diversified companies which are into many business segments go for demerger route as they start growing because as the business grow it is not possible to manage the group under one umbrella.
In case of firm which is listed on stock exchanges than the firm has to give shareholders shares of new company in the proportion of shares held by them in parent company and also this form of arrangement will need the shareholders approval which is done through voting. For example a FMCG company which is also in the power generation would be doing demerger of its power generation unit and form a new company.