Things to consider before restructuring

when splitting your business prior to exit or sale

Reorganising your business for succession and exit

There can be many reasons when you may need to split off separate parts of your business in preparation for succession and exit. For example:

You want to sell just one or multiple parts of the group, but not the whole business.
You need to separate out assets such as property prior to sale.
To facilitate a management buy-out.
To plan multi-generational family succession.
You want to exit the business and other shareholders want to take parts of the business in different directions with separate ownership.

It is quite usual for business owners to want to protect or split off some assets prior to exit or to pass onto family members. Common assets you can split off or safeguard through reorganising your business structure include:

Human assets: People and expertise, key team members, advisors.
Intellectual property: Proprietary information, product ideas, customer data.
Physical assets: Trading premises, major equipment and inventory.
Cash: Savings, liabilities, loans and investments.

The goal of restructuring is to ring fence those assets to protect them or to sell or pass on only parts of your business in the future.

In the years approaching your exit or sale of the business, you need to ensure that the structure of your business doesn't compromise your business value on exit or create difficulty in implementing your succession plan.

So, it is important that years in advance of your proposed exit or sale, that you undertake a review of your business structure to ensure your exit plan isn't de-railed, you achieve maximum tax efficiency and maximum value. Common scenarios where you might consider changing your business structure include:

1. Exiting the business

If you want to move on from the business, whether for retirement or to start something new, restructuring can help with succession planning.

By creating new structures that give roles to existing people or that tie key assets to parts of the organisation you can effectively separate yourself from the business while ensuring stability in terms of talent and IP.

2. Selling the business

If you want to make your business more attractive for sale, restructuring can help.

You may have a management team who could undertake a management buy-out but only of certain parts of the business. Alternatively, you have buyers who are primarily interested in the name and IP of the business, but not in the premises, you can create a new company to retain the physical assets while selling the rest of the business.

When might you want to reorganise your business structure

3. Family succession

Sometimes planning for family succession can be complex. There may be different parts of your family that would like to take the business in different directions.

Often there can be multi-generational succession plans in place, where splitting off separate parts of the business or assets in order to pass them onto to different family members is required.

When planning for exit or sale, you need to consider what is being passed on or offered for sale. If you only wish to sell part of the company’s activities, or to retain property, you will need to consider how these elements can be best split or packaged to achied your goals. Your objectives could be achieved through group reorganisation to either merge or demerge those parts of that you want to sell.

When selling, you may also need to consider who will benefit from the sale. For example, there may be employees who have an equity interest in the company or shareholders who should not benefit from a sale of the shares. In these cases, you may need to undertake a reallocation of the share capital or issue fresh shares to some employees.

If you have number of business interests but haven't considered how relationships between the companies work or where assets are held, then you will need to review the structure prior to exit or sale.

Structuring can allow you to build a package that is more attractive and easy to buy for a purchaser and makes it easier to market the business. For example, separating or merging the trade and property elements of the business may allow you to maximise value and tax reliefs.

Consideration when restructuring for exit & business sale

What is a capital reduction demerger?

One of the way to separate a business, particularly where non-trading assets are involved is a ‘capital reduction demerger’. This type of demerger is often preferred because it is generally more straightforward to implement.

The owners of the newly separated business(es) and assets can be the same as, or different to, the original shareholders.

Capital reduction demergers can work well if you want to sell a part of the group but retain another or if you want to extract a property from the company prior to sale of the trading business.