Factors involved in setting up company structure
There are different factors involved in setting up company structure and it depends on the type of business, circumstances of the shareholders and their aims for the business.
- if you may sell the company and re-invest the profits a holding company may be useful
- otherwise, the co-founders can be the shareholders
- for contractors and family owned businesses, husband/wife can be shareholders to maximise dividends
- ambitious startups looking to grow should setup a share cap table
- leave an option pool for key staff
- eg 2 co-founders setup a company owning 45% each and leave 10% option pool
Clients often have more than 1 business. The simple and efficient solution is to have 1 company and run the different businesses as divisions of this company.
For tax purposes, the different trades need to have separate profit and loss calculations. This is because losses from a trade can be set against the profits from another trade in the same year. But if losses are carried forward against future profits they can only be used against profits from the same trade.
If you’ll be expecting to sell a business/trade, it can be hived out into a separate company before sale. If its held for at least 1 year before sale, then there is no tax due to Substantial Shareholding Exemption.
Sometimes its better to start off with a group structure, so 1 holding company and 3 subsidiaries for the different businesses/trades, although this can also be achieved later on.
Profits after tax can be given to shareholders, and this is normally the most tax efficient way to extract profits.
Dividends have to be paid according to shareholding. So if a husband and wife hold 50% each, they have to receive equal dividends. Sometimes, it may make sense for 1 spouse to hold 100% shares and shares can be transferred between spouses without tax at any time (with the right paperwork) to maximise differences in tax rates and allowances.
If you’ll be receiving investment, the investors will also be able to receive dividends. So if you have a separate side business operating out of the same company, it will normally be better to hive this out before receiving investment.
If you need more help on setting up company structure then please contact us for a free consultation.