Unfamiliar with group structures? In this helpful guide, we’ll breakdown everything you need to know about them, including what they can do for your business.

Coronavirus has made us all reflect on how we can protect our businesses over the long-run. Something you may be considering, as a result, is if there’s a better way to protect your main assets. 

Core assets can be crucial to ensuring the long-term success and sustainability of your business. However, if you hold them all on one single balance sheet, you’re leaving them open to a significant amount of commercial risk. Such risk can arise when you embark on a new venture or with unforeseen circumstances, such as the recent pandemic.

Creating a group structure with a holding company can be the solution. But what exactly are group structures and are there any downsides to setting one up? Keep reading to find out more.

What is a group structure?

A group structure gets created when one limited company owns another limited company. The limited company at the top of the structure becomes what is commonly known as a ‘holding company’. A holding company can have many different subsidiaries, that is, companies beneath it, that it controls.

There are many reasons why a group structure is put in place. In most cases, it’s done to isolate, or ringfence, hard-earned assets in a holding company at the top of the structure. That way, they are protected from the commercial risks associated with any trading company or subsidiary operating beneath. That makes it essential for the operational activities related to the holding company to be minimal and instead be carried out by the lower subsidiaries.

What are the benefits of a group structure?

There are many benefits to putting a group structure in place. However, the three top advantages are:

Asset Protection

A group structure enables you to shelter business assets built up over a company’s trading history. That ensures they aren’t exposed to the day-to-day commercial risks of running a company. Some of the assets that can be placed in a holding company include property and cash. Equipment such as plants or fleets of vehicles, on the other hand, are best placed in a separate subsidiary rather than the holding company. Correct structuring is key to prevent the holding company at the top of the structure from facing any commercial risk. 

Let’s take the example of a property. Let’s say you’ve acquired a commercial property to operate from and have purchased that property through your main trading company. As long as there are enough retained reserves in the existing limited company, a group structure can be put into place which allows the asset to be moved up to the holding company. 

While doing so can free up your trading company’s balance sheet, it’s essential to follow your accountant’s advice in moving any asset. Not doing so correctly can leave the asset exposed to potential risks such as creditors in the event of a liquidation. 

Tax advantages

There are several tax advantages to creating group structures. In the example of the property, there are no stamp duty implications when moving property around the group. Additionally, there are no tax ramifications when shuffling other assets. For instance, if you’ve got a plant and machinery that you are moving from one existing trading company to another subsidiary, there are no tax implications there either.

Furthermore, if you make a loss in one of your subsidiary companies, then you can offset this loss against other profits in the group. Group structures can, therefore, prove to be a very tax-efficient solution on top of protecting your assets. 

Business advantages

A holding company makes it easy for you to add new subsidiary companies to your group. In other words, if you’d like to create an additional unit as your business grows, you can do so through a new limited company. That also means you can bring on other shareholders (subject to appropriate advice) who are only looking to benefit from that business unit and not the entire group.

What are the downsides of a group structure?

Of course, group structures won’t be right for every business, and there are several points to consider before setting one up. For one, a group structure requires additional accountancy fees given that more than one set of accounts and corporation tax returns have to be completed.

Additionally, there are disposal issues to consider, in terms of tax, if you wish to sell only one part of your group. In this instance, additional planning and due diligence will need to be carried out before putting a group structure into place.

The administration of a group structure is also more complex. Sales and costs will need to be recorded correctly within separate books for each of your subsidiaries.  

However, as long as your business is organised, a good accountant can help put the right systems in place to support the running of your group structure.  

Setting up a group structure isn’t appropriate for every company. However, there are some circumstances where it makes strong commercial sense to have a group structure in place. It can enable you to ringfence assets which you’ve worked hard to accumulate, protecting these in the long-run. It can also help mitigate the risks associated with the day-to-day running and operations of your business.

What can Bracey’s do to help?

When it comes to setting up group structures, we’ll talk you through the benefits and challenges as they pertain to your business. Every company is different, so we offer advice tailored to your unique circumstances. We’ll start by reviewing your current situation. If we deem a group structure appropriate, we can then help with its correct setup and administration. Client education is core to what we do along with sound project management, so we’ll be at your side, guiding you every step of the way. By ringfencing your assets, you’ll be giving yourself the springboard to take your business forward in any direction you’d like. Take charge of your future by getting in touch today. We offer a free 30-minute consultation for us to better understand your situation. This 30-minute free consultation gives you time to let us know more about your needs to see if our services are right for you.