Retaining part of business on sale

This is a common and perfectly achievable arrangement, but the detail matters a great deal. The answer depends on what you are selling, how the business is structured, and what exactly you want to retain.

The key starting point is the legal structure of your business:

If you are a sole trader or in a partnership:

You own the business assets directly. You can choose to sell some assets and keep others. For example, you might sell the customer base, goodwill, equipment, and trading name but retain the premises, certain contracts, intellectual property, or a particular division. This is an asset sale by nature, and you have flexibility to carve out what you keep and what you transfer.

If you operate through a limited company:

There are two broad routes.

1. Share sale. You sell shares in the company. If you sell all the shares, the buyer gets the whole company and everything in it. If you want to keep part of the business, you would need to extract the assets or division you want to retain before completion. This might involve transferring certain assets out of the company to you personally or to another company you control. This needs careful handling for tax, especially regarding distributions in specie, capital gains, and benefit in kind charges.

2. Asset sale. The company sells selected assets to the buyer and retains whatever you agree should stay. The company continues to exist and hold the retained assets. You then control what happens to the retained part through the company.

Practical considerations:

Structuring the split. You need to clearly define what is being sold and what is being kept. This includes tangible assets, contracts, employees, intellectual property, customer lists, stock, premises, goodwill, and the trading name. Ambiguity here causes disputes.

Employees. If employees are attached to the part of the business being sold, the Transfer of Undertakings (Protection of Employment) Regulations 2006, known as TUPE, will almost certainly apply. The relevant employees transfer automatically to the buyer on their existing terms. You cannot simply pick and choose which employees go.

Contracts. Many contracts contain change of control clauses or require consent for assignment. You need to review every material contract to understand whether it can be split and whether the counterparty's consent is needed.

Restrictive covenants. The buyer will usually want protection against you competing using the retained part of the business. Expect to negotiate non-compete and non-solicitation clauses. The scope and duration of these need to be reasonable to be enforceable.

Tax. The tax treatment differs significantly depending on whether this is a share sale or asset sale, and on how the retained part is extracted. Capital gains tax, corporation tax, stamp duty, stamp duty land tax, and VAT may all be in play. The availability of Business Asset Disposal Relief, formerly Entrepreneurs' Relief, may also be affected depending on how the restructuring is done and the timing.

Apportionment. Agreeing the value attributable to the part being sold versus the part being retained is often contentious, particularly for goodwill and intangible assets.

Ongoing liabilities. You need to agree clearly who is responsible for liabilities arising from the business before, during, and after the split. Warranties and indemnities in the sale agreement will cover this, and they need careful attention.

Practical next steps:

1. Decide precisely which part of the business you want to keep and which you want to sell. Be specific about assets, contracts, employees, premises, and IP.

2. Consider the tax implications of each route before committing to a structure. Getting this wrong can be very expensive, and the time to take tax advice is before heads of terms are agreed.

3. If TUPE applies, factor in the information and consultation obligations and the automatic transfer of employees.

4. Be prepared for the buyer to push hard on restrictive covenants, especially if the retained business could be seen as competitive.

5. Ensure the sale agreement clearly defines what is included and excluded, with schedules listing retained and transferred assets, contracts, and liabilities.

In short, yes, you can absolutely do this, and it is done regularly. The critical thing is getting the structure right at the outset, particularly the tax treatment and the clean separation of the two parts. If the facts are more specific, I can give you more tailored guidance.