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Restructuring Corporate Assets
19 March 2020
There are a number of commercial reasons that business owners may wish to re-organise the operations or structure of their business. With the need for change often influenced by a variety of pitfalls and risks which are inherent in running a business.
Just as there are a number of reasons that a company may restructure, there are also a number of benefits in doing so. Some are financial; for example, the ability to transfer trading profits and assets out of a trading company, to allow for reinvestment of funds and to protect the assets from legal claims or seizure. Other benefits include the ability for a company to separate its operations into distinct, independent entities allowing the business to position itself for growth and expansion in those areas, whilst preserving assets from risks.
There are a variety of ways of restructuring a business, and the structure that will work best in any given scenario is entirely dependent on the circumstances (type of assets held, type of creditors that the business has etc).
A husband and wife operate and own (equally) a trading company. The company holds cash and the trading premises which it has acquired over time.
The owners have no intention of selling their business in the short-medium term, and wish to accumulate profits. As they don’t need to extract the profits personally to maintain their standard of living, they will then invest into a new business line.
In such circumstances we might suggest that the business owners restructure their business to help realise their goals. Firstly by setting up a new limited company which would become a holding company, and the shares in the company would be owned in an equal proportion to that of the existing company.
The two trading arms of the business would then be separated into two distinct companies, which would require the establishment of one further limited company. The shares in both of these companies would be owned entirely by the holding company, forming a group. Furthermore, for additional protection, the trading premises could be moved into the holding company.
The presence of a group of this nature would allow for cash and assets to be transferred, tax efficiently, out of the trading company to other members of the group; which in this case would be the holding company and the second trading company.
Where a capital gains group exists, assets will be transferred between group members as no gain no loss transfers, making them tax neutral for both parties doing the transaction. This allows the business owners to move assets into distinct entities, along with any related creditors. Which insulates the business assets, should any of the other entities fall into liquidation or have a legal claim issued against them.
Whilst the benefits here are clear, there are also complexities and considerations which are specific to each business and as such this would require professional examination before any action is taken.
If you would like to find out more about the benefits of restructuring and how we can help you to do so, please feel free to contact us.
Furthermore, over the coming months we are planning to present a series of webinars looking at the topic of business restructures to see what can be achieved and how, in more detail. Please ask for more details if this is of interest to you.