When it comes to setting up corporate structures there are a variety of considerations to bear in mind. There are both commercial and tax implications that need to be considered. The adage that the tax tail should not wag the commercial dog is very true in these situations. However, one of the main commercial considerations in determining the best structure for the business is actually to consider the tax implications, as they will have a big impact on the financials for the business.
Setting up a Limited company:
A Limited company structure provides important protection due to the "limited liability" characteristic of companies. By being a Limited liability company it means that the shareholders are protected from loss of their own personal assets. Another advantage of Limited company status is the current favourable taxation treatment of companies compared with sole traders/individuals. Some problems inherent with a Limited liability structure include that the structure is rather rigid in that incoming or exiting shareholders will have various implications for the business - and there will be taxation implications on the disposal of shares or "company buy back" of shares.
Limited Liability Partnerships:
Limited liability partnerships allow for greater flexibility in that profits sharing ratios can be changed dependant on private agreements of the Partners. The main constituational document of the partnership will be the partnership agreement. This will control the way in which the partnership interacts and behaves with its members and the way in which business is conducted by the partnership. An LLP is tax transparent and therefore the taxation of the profits of the partnership fall onto the "members" of the LLP.
There are a variety of benefits in setting up a corporate group structure - either at the inception of the business or at a future point in time. We have advised many clients on the benefits of setting up a corporate structure such that they can benefit from important tax reliefs such as Substantial Shareholders' exemption on a disposal of part of the business. It is important to liaise with us in advance of making any important decisions as there will often be certain ways of carrying out transactions that will be more beneficial from a taxation perspective.
Please contact your usual MG Group contact if you would like to find out more about the options available in setting up a business structure and to determine what the advantages and disadvantages are from each type of business structure.