Introduction 

From time to time, I am asked to provide support to a client who’s business is going to demerge or separate. The reasons for splitting a business into separate parts could be one or more of many. Examples are:

  • The business has diversified and moved into different products/services/markets. There may be cultural differences between the different businesses or differences in profits/losses which might prompt a demerger;
  • In readiness to sell part of the business. The attraction to buyers may be enhanced if the business they are interested in is separated offering a clean and speedy purchase;
  • To focus on its core business. The demerged businesses often have the benefit of focussed leadership;
  • To protect assets. The value of assets may be protected in a separate company against, say, the insolvency and subsequent liquidation of other parts of the business;
  • Tax reasons;
  • Disputes between the owners. The owners may decide that they cannot continue to work together and will therefore decide to part company with different parts of the business split between them.

Conclusion

Demergers can be an effective means of re-structuring and can streamline the operations of a business. However, in addition to the commercial implications, there are tax, employment and other legal matters to consider.

Claric are specialists in commercial law. We’d be happy to discuss any prospective demerger with you.

Contact Richard Jenkins on 024 7698 0613 or Richard@clariclegal.co.uk for further advice or assistance.