Business owners may find that it is beneficial to set up separate legal structures for different parts of a business. We offer a packaged legal product to assist with planning and implementing an appropriate legal structure for your business.
The potential benefits include:
- It allows the minute control of profits in the two entities, that has an impact on issues such as taxation and dividend payments - it also has potential funding implications
- It allows great flexibility in the management of the businesses – for example:
- Other businesses might be added to (or removed from) the administration service – e.g. one might buy and/or sell revenue businesses and/or the costs businesses, separately
- It might also have significance for regulatory issues in some sectors, e.g. where the revenue business is regulated, but aspects of the service business are not, then it might be convenient to keep the non-regulated aspects of the service business outside the scope of the regulation of the revenue business; this might also help where there are solvency or capital requirements
- It also allows flexibility in management – e.g. there might be reasons to want different directors and owners for different aspects of a business
- Running the two entities separately isolates the potential liabilities of the two business. There might even be a deliberate policy of periodically cleansing liabilities by transferring between administration entities, whilst keeping the revenue entity continuous. This might be important in the case of employees and commercial property leases (normally costly and difficult to extract from, from a tenant’s perspective) – similarly utility liabilities.
- It would also allow the mixing of legal entities where that might be considered beneficial, e.g. between structures (partnership and company, for example) or jurisdictions [echoes back to the possible fiscal benefits]
- Our experience has also been that two-half entities are able to get more advantageous banking
There are of course draw-backs to counter these advantages. The main ones seem to be:
- Administrative complexity and therefore potential additional cost - e.g. Two sets of accounts. Strictly speaking, it is two half sets, so shouldn't be more costly - it may even be possible to save money on accounts, since some accounts might be simple to work out. This could mean that you only need accountant assistance for more complicated accounts.
- The possibility of challenge to the structure if perceived as improperly used to obtain illicit tax benefits - nothing fiscal can be guaranteed as being secure from challenge. We believe, however, that the structures suggested are reasonably common in larger and/or better informed entities and are not aware of any successful challenge by HMRC.
As well as the establishment of the entities, there would also normally need to be a re-charge structure between them to allow mutual invoicing and transfers of existing businesses into them.
How long will it take?
It usually takes a few weeks to set up an effective business structure. This can be reduces in cases requiring extra speed for a small charge.
Our work will include the planning of an appropriate legal structure for your business and the implementation of that plan, including transfers and re-charges.
These are not services amenable to blanket fixed fees. Please contact us to discuss.
If you have any questions or require any further information, please don’t hesitate to Contact Us.