Ltd company Question

[vixpy1]

thinking of buying another company, is it best for my company to own the company (is this possible) or for me to own them both as ltd comps?

Thanks,

Charlie.

[Eric Mc]

It is OK for one limited company to own the shares of another limited company. In this situation, the "owned" limited company is called a "subsidiary". It is also OK for an individual to own separate limited companies.

There is no "best" situation. It all depends on the nature of the businesses you run and how well they might interact.

There are a few things you should be aware of:

Whether one company owns the other or not, the two companies are separate legal entities. Two sets of accounts must be maintained for both (fairly obvious really) and separate submissions and returns must be made to the Inland Revenue and Companies House for each company.

If one company owns the other, then you may have to prepare three sets of company accounts - a set for each individual company and a consolidated set showing the figures for both companies combined.

Even if the second company is not owned by the first, any transactions between the two companies need to be separately disclosed in notes to the accounts of both companies.

If two separate companies, a loss in one company cannot be offset against a profit in the other.

If one company owns the other, there may be the possibility of setting a loss in one against profits in the other under "Group Relief" provisions.

If one company owns the other, then if one company needs to have formal "audits" carried out each year( even if the other company is under the audit exemption thresholds) the second company will probably need to be audited as well as part of the overall audit of the "group".

Whatever the set up, careful monitoring of inter company trading and other inter company transactions (such as loans to each other) must be maintained. It is very easy for the accounting to get very muddled, especially when one company starts settling the bills of the other.

If at all possible, it makes life easier if both companies have the same financial year end and even similar VAT quarters.

I would expect that compliance costs (audit/accountancy fees etc) would be higher for a combined company set up compared to those for two completely separate companies.


>> Edited by Eric Mc on Tuesday 19th April 08:03

[srebbe64]

Thare's also anther factor to be borne in mind. There's some wisdom in setting it up so that there is a "holding company" which owns a "trading company". The reason being when you come to sell it, if the holding company sells the trading company there is no CGT to pay whatsoever. However, the money raised needs to be kept within the Holding company for a further investment (unless you've got a very canny Tax advisor). If you want to pocket the money personally you can sell both the holding company and the trading company and (providing the shares have been owned for more than two years) you can get 75% Tax Relief. 75% of 40 is 30, therefore you only pay 10% CGT. As such, to set up a holding company which owns a subsidiary gives you more options if and when you come to sell it. One of the things I've learnedover the years is that you always need to be thinking about planning you exit-strategy, even from a very early stage.

[kevinday]

A minor correction to Eric's post. As far as taxes go it does not matter whether one company owns the other or whether you, as an individual, own both. The net result is the same, they are counted as a group for tax purposes, and the tax rate thresholds are divided between the companies. You, as an individual, owning them would lose out the opportunity to transfer loss relief from one company to another as the loss relief group is determined by a company' holding in another.

A holding company may be the way to go, this then owns both the other companies and you can use legal solutions to minimise the tax paid overall.

I am not a tax adviser, but I do teach basic company tax for ACCA paper 2.3, so I am aware of the rules to that level. Well, I hope so anyway

[PetrolTed]

srebbe64 said:

stuff

Interesting. Can a company be restructured after incorporation to achieve this?

[Eric Mc]

Yes.

Provided it is not expressly forbidden in the company's Memorandum and Articles of Association (which is not very likely).

Most companies are set up in such a way that they are free to acquire/buy (and dispose of/sell) shares in other limited companies if they so wish.

[Eric Mc]

Thanks for the correction Kevin. The point I was trying to highlight is that transferring losses between limited companies and obtaining loss relief against "other income" is bit more tricky than if the trading loss was incurred by a sole trader.

[srebbe64]

PetrolTed said:

srebbe64 said: stuff Interesting. Can a company be restructured after incorporation to achieve this?

Absolutely, Ted. The two year taper clock will be reset (to get maximum Tax relief if the company's sold) but you can certainly alter the structure of the company/s to suit. Obviously, there are a few considerations to consider: Two audits not one, for example. But the audit for the holding company will be very cheap because there won't be much to audit! Aside from the above there are no significant negatives that I've come across.

Also, another benefit of having a holding company which owns subsidiaries is that you can ring-fence certain aspects of the business - bit like a submarine having walls between departments in the envent of a breach of the hull. Terrible example, but you get the idea I hope!!

[vixpy1]

Thanks guys

[srebbe64]

vixpy1 said:

Thanks guys

Are you thinking of setting up a "fine crystalware" company?

[vixpy1]

srebbe64 said:

vixpy1 said: Thanks guys Are you thinking of setting up a "fine crystalware" company?

HAHAHA