Splitting a business

Reasons for splitting a company 

The right approach to splitting a business depends on the commercial objectives and the applicable tax rules. Every situation is different and requires a tailored approach.

• To prepare for the sale of part of the business – buyers may prefer to acquire a clearly defined business with its own assets, services or products. Where different activities are held within one company, separating them into distinct legal entities may improve marketability and help facilitate a future sale, subject to the commercial and tax implications.
• To protect valuable assets, particularly intellectual property (IP) – holding IP in a separate legal structure may help protect its value from certain risks affecting the trading business, including potential insolvency. The appropriate structure will depend on the circumstances and any existing security or contractual obligations.
• For tax reasons – a business split or demerger may be considered to achieve particular tax or commercial objectives. The available options and tax consequences depend on the proposed structure and the circumstances of the business.
• To resolve disputes between business owners – dividing a business between owners who no longer wish to work together can be difficult, particularly where assets, liabilities and operations are closely connected. A split may be possible, but alternatives can include selling the business or one shareholder buying out another. Disputes can arise where owners originally expected to contribute equally but one becomes passive or takes on substantially less of the day-to-day work.

Employment law potential complications 

Where an existing business employs staff, separating its activities may affect employees and their employment rights. Redundancies are not always a straightforward solution, and the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) may apply, depending on the transaction and how the business is reorganised. We can advise on the potential employment law risks and implications of a proposed business split.

Legal support for business splits

We regularly assist clients with business splits and related restructuring. We assess the available options and help you navigate the legal, tax and commercial considerations, working with specialist advisers where appropriate. Please call or email us to discuss your circumstances.