Splitting a business
Splitting a business – the types, the reasons, the potential complications
The terminology associated with and reasons for considering splitting up a business into separate parts is confusing in itself. Business splits for commercial reasons are often described as demergers whereas business splits in small businesses are more commonly associated with businesses which have only 2 or 3 shareholders, family businesses or partnerships where things aren’t working out.
As we detail below, there are lots of potential reasons for splitting up a business but it’s important to understand that where this is considered with an existing business, with assets and liabilities and staff, there are complex employment legal and tax issues which arise. Understanding the commercial cost of these needs to eb weighed against the potential advantages of the split.
Gannons are specialists in commercial, employment and tax law. We cover all the core competencies associated with business splits and demergers. We are a niche firm and our charging rates are competitive especially given our level of expertise. We’d be happy to discuss any prospective business split you are considering with you.
Reasons for business splits
- The business has increasingly moved into very different and specific products and services which are very different from each other.
- 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 protect very valuable assets (especially IP which is a vital and often very valuable group of assets – by keeping IP in a separate legal structure via a separate limited company the value can potentially be ringfenced 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 business owners no longer want t work together. This is sometimes possible but is complex and a more common outcome is for a business partnership split to occur with the whole business being sold or where 1 owner buys out the other owner. A common reason for considering splitting up a business with very small businesses is where the owners were both expected and agree 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 splitting up a business
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.