Using group structures to protect business assets

Business owners are increasingly turning to group company structures to better prepare for and shape future growth to protect key business assets.

The experiences of the past two years with the uncertainty this has created for businesses and their owners have led to a renewed interest in finding the right structure to support future growth and expansion. That will often see the creation of a holding company separate from its trading entities.

It is a move that can separate and protect key assets from the day-to-day trading business, it can enable a business to explore new avenues and ventures, create a more attractive business structure for a future sale, and preserve the wealth for its founders.

Common triggers

There are many reasons for a business owner to consider restructuring a business to include a holding company and trading entities, making the movement of cash and assets between group entities easier.

New premises

Business owners will often look to create a group structure when moving from leasing a premise to owning it. The building will sit in the holding company separated from the trading entity with that trading entity continuing to pay rent for use of the building.

Employee share schemes

Business owners looking to incentivise staff with employee share schemes will often structure it through a separate company preserving the efforts of its founders whilst allowing staff to benefit from future growth.

Asset protection

Businesses with valuable assets, such as intellectual property, or which generate considerable amounts of cash will use subsidiaries to hold and protect those assets. Assets can generally be moved between subsidiaries without tax implications.

New business ventures

Businesses looking to create new revenue streams that may be very different from their primary business, such as investments in buy to let property, will choose to do so through a separate trading entity.

Business sale

Planning the sale of a business will often require some restructuring to move assets that hold value for the business owners but not to the acquiring business. This might include, for example, property owned by the business which is in the same legal entity as the trade being sold.

Another incentive to get this right is the need for business owners with a future exit in mind to keep a close eye on entrepreneurs’ relief: HMRC may see companies that hold significant cash or property as investment businesses rather than trading businesses and therefore they could be excluded from this valuable relief.

Tax and regulation

Businesses should keep in mind the cost of restructuring a business into a group structure and the additional ongoing regulatory requirements. They can be significant.

Tax implications also need to be considered, with complex group structures potentially accelerating a move from an annual to quarterly tax cycle.

A word of warning

One of the reasons why assets, such as intellectual property, are transferred from a trading entity to another group company is to protect the assets in the event that the trading business fails. The assets will need to have been transferred at least two years prior to collapse or transferred at a market value with the trading company receiving cash for the transfer. If not, those assets could be available to creditors if the business fails.

How we can help

Changing the structure of a business is not something a business owner should consider without first taking advice. Our specialist teams can help business owners find the right structure for their business, create those structures, assist with the reporting and regulatory requirements, and advise on any tax implications.

If you would like further information on this topic, please do get in touch.

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