Splitting a business

How to split up a business effectively 

There are many reasons for splitting a business up so that it becomes owned by different shareholders often under new control and via new companies. The position can be complex but with care it is possible to navigate a way that does not result in tax charges for the business nor the shareholders.  There are many routes to take. We will find the best approach for the outcome you wish to achieve.

How to split a company 

The approach for splitting a business depends upon the commercial position and the tax regimes applicable.  No two situations are the same.  We take some of the typical reasons which may mean you want to split up the business and suggest core considerations which need thinking through :-

• To plan for selling part only of the overall business – business buyers increasingly want a clean entry point into a business. A business which has some valuable assets, services or products but others that are not may be far less attractive and prevent or significantly obstruct or delay a planned future sale at maximum speed and exit value. To improve marketability the businesses should be split into two separate companies each capable of operating independently.

• To protect very valuable assets especially IP  – by keeping IP in a separate legal structure via a separate limited company the value can potentially be ring fenced against possible business problems or insolvency of other parts of the trading business)
• Tax reasons – (see our page on tax issues associated with splitting a business or demerging)
• Disputes between business owners – there are realistically few businesses where there can be an easy or practicable division of assets and liabilities where the company owners no longer want to work together. This is sometimes possible but is complex and a more common outcome is the whole business being sold or where 1 shareholder owner buys out the other owner. A common reason for considering dividing up a business with very small businesses is where the owners were both expected and agreed to work actively in the business but where, in reality 1 owner is doing almost all or all of the day to day work and the other becomes passive or doesn’t pull his or her weight.

Employment law potential complications 

With existing businesses employing staff, it may be tempting to think you can save money by separating aspects of the business and reducing staff by redundancies. There are potential pitfalls and employment law risks associated including the TUPE rules. We can advise on all the employment law risks and ramifications.

Lawyers for advice on business splits

This is an area of work we assist clients with on a very regular basis. Our experience means we can quickly get to the core issues and advise on the best options taking into account all the legal, tax and commercial implications. Please do call or email us.