A buyer may want your business without wanting everything currently sitting inside the company or group. Over time, businesses accumulate property, investments, surplus cash, historic subsidiaries, separate divisions and other assets that may not form part of a future sale. A pre-transaction structure review identifies those issues before a buyer’s timetable limits the options.
What should be reviewed?
The starting point is to understand which company carries on each trade, where property and intellectual property are held, whether surplus cash or investments exist, how the shareholding is structured and what the shareholders would actually want to sell or retain.
When a demerger may help
If two different businesses sit in the same company, a buyer cannot simply purchase shares in one of them. The parties may need an asset sale or a restructuring that separates the businesses into different corporate structures.
A demerger can also be useful where different shareholders want different businesses, where trading and investment activities need separating, or where a particular division needs to receive external investment.
There is no single demerger route
Some genuine trading separations can use the UK’s statutory demerger regime. However, that route has important restrictions and will not generally be available where selling the demerged trade forms part of the arrangements. A sale-driven separation may instead require a capital reduction demerger or another corporate reorganisation.
A capital reduction demerger is not one single tax relief. Capital Gains Tax, Corporation Tax, stamp taxes, distributions, Transactions in Securities and any property taxes may all need separate consideration. This is why the structure has to be designed around the full sequence rather than one isolated step.
Moving assets before sale
Groups can often transfer certain assets internally without an immediate tax charge, but charges can reappear if the recipient company later leaves the group. A pre-sale hive-down can therefore create degrouping issues, and property or intellectual property may have additional tax consequences.
The eventual disposal must also be considered. For example, a holding company selling a qualifying trading subsidiary may benefit from the Substantial Shareholdings Exemption, but a newly created subsidiary sold shortly afterwards can raise different issues from a company that has existed within the group for years.
Surplus cash and investments
Sellers may want to keep cash, property or investments that a buyer does not want. There may be ways to separate them, but removing value shortly before sale can affect the price, the company’s tax position, the shareholders’ personal tax position and available reliefs. A genuine commercial reorganisation is very different from simply trying to extract accumulated profits at capital tax rates.
HMRC clearances
Share exchanges, reconstructions, demergers and Transactions in Securities can all have advance clearance procedures. Clearance can provide valuable certainty, but each application covers a specific issue rather than approving the transaction as a whole.
Timing creates options
A problem identified 18 months before sale can often be dealt with calmly. The same problem discovered after a buyer has offered £15 million and wants to complete in ten weeks may be much harder to solve.
The central question is simple: if somebody wanted to buy the business tomorrow, could you sell exactly what you intend to sell? If not, an early structure review can create far more flexibility when a transaction eventually arrives.
Often the best outcome of a review is confirmation that no restructure is needed. That still has value: shareholders can enter a sale process knowing where assets sit, which reliefs are expected to apply and which issues a buyer is likely to raise during due diligence.
Where changes are needed, early planning also gives advisers time to coordinate the tax steps with legal documents, lender consents, employee transfers and buyer requirements rather than dealing with them under transaction pressure.
