Choice of company operating structure

The most suitable company structure for your business will depend on the importance the business owners place on a number of commercial, tax and legal factors.

A requirement for limited liability may outweigh all other considerations, particularly if your trading activity is one which may be vulnerable to claims or liabilities. The risks of one trade could affect the viability of the others. This type of concern would point to the use of separate parallel operating companies, or a group structure. Banks or other lenders may wish to protect their position by entering into cross guarantees between companies or personal guarantees from the business owners.

Operating trading companies in parallel gives protection from risk and gives flexibility of allowing management responsibility of the individual business to be reflected in the respective shareholdings. If one of the trades is likely to be sold and the intention is to extract the funds into the hands of shareholders, the potential availability of entrepreneurs relief for Capital Gains Tax, bringing the rate payable down to 10%, could be attractive.

A group structure, comprising a holding company and trading subsidiaries, may also be attractive in giving protection from risk and also tax advantages. Disposal of a single trading subsidiary may be tax free if qualifying criteria are met and the intent is simply to reinvest the proceeds in ongoing trading, by expansion or reducing borrowing.

If one trade is making losses, a group structure can facilitate offset of losses between companies. It is also possible for a subsidiary to move cash or profits up to a holding company of a group by payment of a dividend, which is not taxable in the hands of the holding company. Tax charges will only arise when the cash is distributed to the shareholders of the holding company.

Should you wish to operate more than one trade within the wrapper of a single company, this has the advantages of simplicity and a 'combined' set of accounts, which may reduce costs and limit the information about individual trades available to competitors. There may still be scope to sell a single trade tax free by moving it to a new subsidiary, depending on how long the trade has been in operation and the specific assets of the business.

The optimum company or group structure for a business will depend on the specific activities and intentions and preferences of the business owner. We would be happy to discuss the structure of your business and any potential changes which could be made. Should you require further assistance with this or any other tax matters, Mark Thompson of Rennie Welch LLP can be contacted on (01573) 224391 or mark.thompson@renniewelch.co.uk