There are many factors to consider when deciding whether to form a group corporation structure and whether it is right for your new or existing business.
Group structures can take a variety of forms, including vertical and horizontal formats, as well as hybrid structures, as shown below.
Alternatively, one or more separate stand-alone companies can be formed with common ownership, but without a formal group structure.
Another option is to have a single company with separate business divisions.
Why form a group structure?
There can be a number of potential business, regulatory, legal and tax advantages to forming a group company structure.
A subsidiary can be used to protect assets or liabilities, with each group company having limited liability.
Therefore, if you intend to launch a new product or develop you into a new market, using a subsidiary to that end, you can keep the company’s assets in another group company and thus protect the risk of the new company. If the new venture succeeds, the subsidiary may build its own brand and its own reputation independently of other group companies, but with the benefit of financial support.
By using a subsidiary to undertake different activities or hold certain assets (eg intellectual property), there may be an administrative or regulatory advantage. It may be possible to extend certain regulatory approvals to other group members.
A group company can be used to centrally hold certain group assets, for example property or intellectual property, which can then be used in the other group companies, for example by leasing or licensing them under Licence. This allows the group to commercially exploit its assets, while endeavoring to protect them from commercial and financial risks.
One of the main benefits of a group structure with respect to different companies in common ownership is that, subject to compliance with various conditions, the group companies have between them a number of exemptions and concessions tax. These include the application of certain tax losses and cuts across the group, the transfer of assets between group companies as well as tax exemptions on companies and tax stamps ( or tax on land transactions in Wales).
In the future, you may want to sell only part of your business. A group company structure can help with this, especially if you want to keep part of the business for future generations.
Other potential benefits include company pension contributions, the more efficient extraction of dividends and reward key employees of a company without affecting other businesses.
The process of forming a group, with the benefit of proper accounting, tax and legal advice, is not as complicated or expensive as one might imagine. It may be worth considering doing so to take advantage of some of the potential benefits described above.
The creation of a group structure can be tax-free in most cases, and is often used in estate planning scenarios if a business partner seeking to withdraw.
In addition, assurance can be sought from HMRC, before the process begins, to assure the individuals and businesses concerned that no tax will be due.