Two of the new colleges, each with their own principal, would concentrate on sixth-form provision, as agreed by acting principal Sir George Sweeney and Terry Melia, chair of the Further Education Development Agency.
A third would provide a mix of further and higher education, with some sixth-form classes, but focusing on adult students.
The Sheffield review report, covering the college's future, was published today by the Further Education Funding Council.
Each college would have its own governing council, with members delegated to an over-arching "corporate board" for the three institutions.
The rescue plan includes reducing the number of staff, investigating possible public-private sector partnerships and improving management accountability.
The review team also says the college should improve links with Sheffield LEA, the city's two universities and local businesses.
Sheffield also needs to develop an ICT strategy to exploit the Internet. The review of the college's role was launched after it was put under special masures by the FEFC last year.
Sheffield was criticised for its management structure and governance this week after an FEFC inspection in May.
The inspectors' report said: "The financial position of the college is weak. Strategic and operational planning has been inadequate and the college is failing to meet the educational needs of its community ... The management structure is over-complex, lines of communication have been poor, and staff are inefficiently deployed."
It says governors should "play a greater strategic part in determining the college's strategic direction and securing its solvency".
"They should monitor the college's and their own performance more closely.
The college came under special measures after the resignation of three of its four senior managers late last year. It lost its principal, director of finance and head of human resources.
The FEFC was already concerned about the college's deteriorating financial position, its management and overall post-16 provision in the city, with a population of 530,000.
The college was created in 1992 by the merger of six FE colleges controlled by the local education authority.