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SIBA Quarterly Journal March 2013

Have you got the right structure?

We regularly come across examples of breweries that have not given enough thought as to how their business is structured but who have now grown to such a size that they simply have to address it.

Partner James Allison takes a look at some of the issues that any business owner should consider when deciding the right structure for their business.

As an example, a sole trader (or ‘partner’) can establish a new company with which he or she then forms a partnership in relation to an existing business.   This ‘corporate partner’ can then legitimately and lawfully be allocated a significant part of the business profits.  And because it is a corporate entity it will only be subject to corporation tax, which is often only at the small profits rate of 20%.  Profits can then potentially be extracted from the company in the future at lower income tax and / or capital gains tax rates.

Corporate partnerships are becoming a very popular form of tax planning as they can help to reduce the exposure of sole traders and individual partners to the 40% and 50% income tax rates. Your accountants can advise you on this and if you need help in speaking to an accountant capable of delivering this service, by all means let us know.

So, while you are working hard to make your business successful, it’s worth considering: are you making the most of what is available to you to enhance your position in the business?

Some questions may be worth asking yourself (and your accountant) when considering the right structure for your business:

  • Do I have the most tax efficient structure in place?
  • If you are a sole trader, would a limited company be more appropriate?
  • If you trade as a limited company have you made the most of its structure to be tax efficient, so that tax savings can be reinvested into the business to develop further growth?
  • What else can you do to mitigate your personal tax position and that of your company? What savings can be made and how?
  • What is the relationship between the people that own the business?
  • Is each stake-holder ultimately seeking to achieve the same thing?
  • Have you got a shareholder’s agreement setting out who owns what?
  • How do you control the behaviours of shareholders?
  • Have you got the necessary protection over your own business if you have other shareholders and/or investors involved?
  • What can you do if you want to sell the business and the other shareholders don’t?

For a limited company this clarity is usually achieved through a shareholder’s agreement.  However, we come across examples where these issues are not thought about until it is too late and it has already become apparent that the aims of the business owners are not aligned.

Feel free to contact James to discuss your concerns.  He can advise on what you need to consider or put in place in order to preserve your wealth, mitigate your general exposure in the company and ensure that you safeguard your business interests