You might want to split your business for a number of reasons. Our solicitors can help you separate your existing business which will often then be owned by different shareholders.
What are the key issues to consider?
The key issues which our solicitors will consider with you when splitting a business are:
- Who will keep the brand?
- Will commercial contracts be affected by change of control of the resulting businesses.
- Will the cash position of the company be affected?
- How will the assets and liabilities be allocated?
- What is the tax consequence?
What will be the best way to split the business?
There are three principal ways to a business can be split. Our solicitors will consider with you the best choice depending on your business objectives.
Statutory demerger - This usually involves creation of a new company (NewCo) as a subsidiary of your current company. The NewCo shares are then transferred to a particular shareholder in proportion to the value of the relevant business line. A statutory demerger is a well established route and HMRC will give advance clearance on the tax neutrality.
Reduction of capital demerger – An existing business line is transferred to a particular shareholder as a repayment of share capital.
Liquidation demerger – The business is divided into separate business lines between existing shareholders and the existing company is liquidated.
Will employees be affected by the split?
Employees are likely to fall under the TUPE legislation as splitting a business may result in a change of employer (especially if a NewCo is created) affect the employment terms. TUPE legislation will require:
- consultation with employees
- employment terms and conditions will need to be preserved.
If certain employees are no longer needed, dismissal as a result of a de-merger can be a fair reason meaning the employer is not exposed to an employment law claim.