As we emerge from lockdown, businesses will be considering the future from many different perspectives, whether that is protection, growth, improving operational efficiency, succession, or sale. In many cases, some form of restructuring will be necessary to meet the business’ objectives – which can often be carried out quite straightforwardly.
As we begin emerging from lockdown, businesses will be considering the future from many different perspectives, whether that is protection, growth, improving operational efficiency, succession, sale or something else.
In many cases, some form of restructuring will be necessary to meet the business’ objectives.
For example, if a business has different departments under the same, single corporate structure, there may be some areas that are profitable and others that have struggled to bring in turnover.
This may have been the case for some time, but the present situation may have brought this into sharper focus. A significant downturn in one area can have a dramatic effect on the business as a whole ¬– and it may not be ideal for a particularly profitable area of the business to shore up others that are failing.
This may also be relevant where a business is established through several separate corporate entities, all of which may be owned by the same individuals, but are not within the same group of companies. This often makes it difficult for the business to share resources between the separate arms.
Alternatively, a business may have diverse areas within a single corporate structure. The individual elements may well be very marketable for a sale, but collectively very difficult to either pass on to future owners or prospective buyers.
For all of the reasons above, it may be helpful to consider restructuring a company, whether from one corporate entity to several, or by bringing several separately owned companies under the ownership of one corporate entity. In many cases, this is actually relatively straightforward.
The very first port of call will be your accountants and tax advisers, for several reasons:
1. They may well be able to find tax efficient ways of distributing profits through a different group structure.
2. They will be able to assess the viability of different areas of the business and provide advice on an appropriate structure.
3. Clearance will almost always be sought from HMRC in order to approve the proposed structure, ensure that the proposed structure will not infringe any tax rules, and verify that the issue of shares to the proposed recipients will not be treated as income or a distribution.
The benefits of this a restructure or reorganisation can include:
› Once companies are in the same group, group tax reliefs can be used to transfer assets and cash within the group. This is known as hiving up – or hiving down – depending on whether the assets are travelling up to the top company, or down to a subsidiary.
› If difficulties arise in one of the subsidiaries, or if proceedings are issued against one of the subsidiaries, the assets of the other members of the group, including the top company, can be insulated from such action.
› If a prospective buyer is interested in the entire business, the top company can be acquired, and all companies will be transferred at the same time; equally, if a prospective buyer is interested in only one or some of the arms of the business, just that subsidiary can be acquired.
A restructure can carry many benefits, both from a structural and financial perspective, and with proper advice and assistance, is straightforward and cost-effective. Reorganisation can ensure the long-term viability of a business, to hold or to pass on the next owners.
Here are five recommendations for businesses considering any sort of reorganisation:
1. Carefully assess your business to see if it is sufficiently diverse to justify separating it into different subsidiaries. A failure to do so can result in confusion, both in the marketplace, but also with staff.
2. Speak to your accountants and tax advisers early to hear their views on what the best structure might be. This will assist not only with short term implementation, but also long term planning.
3. Consider in detail how easy it will be to transfer assets – and most importantly people – into the correct subsidiary. Consider carefully if any third parties will need to be consulted e.g. your bank, or any lease companies.
4. Obtain clearance from HMRC to ensure there are no adverse implications from restructuring your business. Whilst relatively straightforward – and usually granted – a failure to do so can result in significant taxation implications.
5. Once the restructure has happened, make sure that people and assets are only used in one subsidiary so that there is a clear separation of responsibilities and liabilities.