MFI has confirmed it is in talks with Merchant Equity Partners (MEP) about the possible sale of its retail arm.
MFI has been trying to reinvigorate the business
The furniture business, which has about 200 stores, said the deal involved the payment of a nominal sum and future cash payments from both MFI and MEP.
Last month, MFI said it was in talks about selling off its retail side as part of a shake-up of the business.
MFI stores have been struggling recently, with revenues down 25.1% in the first six months of the year.
The firm's statement followed a report in the Financial Times which said it would hand over the chain on a debt-free basis and also absorb existing pensions liabilities.
The group would also help to fund a joint financing package to keep the business afloat, the FT said
A deal - which could see MEP paying a nominal £1 fee for the business which was once valued at £1bn - could go through as soon as this weekend, reports suggest.
However, MFI added: "A number of significant issues remain outstanding, and the discussions may or may not lead to a transaction which the board would compare with other options for MFI Retail."
News of a possible deal offered a fillip to MFI's shares, which closed up 2 pence, or 2.3%, at 89.5p.
Last month, MFI revealed it had fallen £45m into the red during the first half of the year as it battled against a "rapidly changing marketplace".
In an effort to turnaround the business the group has closed 13 outlets, sold its Sofa Workshop chain, replaced its chairman and shut down factories leading to 1,000 job losses since the start of the year.
However, its Howden Joinery trade business has remained profitable.