How to split a company – going your own way?
There are many reasons why shareholders or directors may want to split up a company or a group of companies. Some of the most common reasons for splitting a business are:
- A breakdown of relationships between shareholders
- To allow the business to diversify into new areas
- As a precursor to a sale of one part of the business
- To de-risk part of the business where one part is high risk
- To decrease the costs and administrative burdens of operating a complex group structure
Some well-known businesses have recently considered separation for various commercial reasons.
Reasons for splitting a business
Wickes & Travis Perkins: Wickes demerged from the Travis Perkins group earlier this year. The motivation behind this was to allow Travis Perkins to focus on a distinct part of its business (construction) and to cut down operating costs associated with the group structure. In the months following, both companies have reported a significant rise in their revenues.
GlaxoSmithKline: GSK has recently announced plans to spin off its consumer healthcare division and retaining the pharmaceuticals division. The goal is to unlock value for the GSK’s investors by increasing profits in both divisions.
Although, both of the examples are public companies, demergers and other types of separation are equally well suited to private limited companies.
Demerging a Company
Splitting a company is often referred to as a “demerger” although there are various ways to achieve a separation. In order to identify which route works best for your company, we would recommend taking both legal and tax advice before embarking on a separation. If the separation is not structured correctly from both a tax and legal perspective, this could result in a hefty tax bill or other unintended liabilities down the line.
If you are thinking about preparing for a separation of your business, you will need to think about the business as a whole. Some questions you will need to consider, include:
- What will happen to any valuable assets such as intellectual property, property and machinery? Will these remain with one part of the business or will both parts need to use them?
- What will happen to customers and suppliers of the business?
- Will the two new companies be able to compete with one another?
- Does the company have any outstanding bank loans or other liabilities that will need to be paid off or restructured?
- Will any of the management team or employees transfer to the new company?
How can we help with your demerger or company split?
Our Corporate team regularly assist clients with separating their businesses, via demergers and other forms of corporate reorganisation. Our experience allows us to advise businesses on the best options for them, taking into account legal, tax and commercial considerations.
If you are considering splitting your business, please contact:
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to your own particular matter before action is taken.
Senior Solicitor, Corporate and Commercial Law
Solicitor, Corporate and Commercial
Enter your email address for legal updates on Corporate and Commercial law.
While cost savings remain the main reason companies outsource, quality and technical competence are equally important.
The strict legal answer is that under the Non-Contentious Probate Rules all Wills must be open to inspection after probate is granted.
Further tax rises seem likely and it is quite likely that it will not solve all the problems of the Social Care system.
Top Legal Insights
Award winning legal advice
We are solicitors in Camberley, Wokingham and London. In 2019, Herrington Carmichael won ‘Property Law Firm of the Year’ at the Thames Valley Business Magazines Property Awards, ‘Best Medium Sized Business’ at the Surrey Heath Business Awards and we were named IR Global’s ‘Member of the Year’. We are ranked as a Leading Firm 2020 by Legal 500 and Alistair McArthur is ranked in Chambers 2020.