The vast majority of businesses in the UK operate as a single entity. One company, partnership or LLP.
This means that the ‘good’ bits of the business such as valuable assets (property, cash, intellectual property, plant and machinery etc.) are in the same place as the ‘risky’ bits, such as employment risk, product liability, creditors and tax liabilities.
Our starting point is to consider a two company structure where a holding company sits on top of a trading company. Day to day activities and risks are all in the trading subsidiary, and all the value held in the holding company. As money is made it is moved up into the holding company so that value builds up, but the trading company remains little in worth. If there is a catastrophe, such as a huge bad debt, massive legal dispute, unfair dismissal claim or anything that could seriously damage the business, this is contained within the trading business. If necessary, the holding company can shut down the subsidiary and the value in it is protected from those risks.
Complex rules that need careful planning, but an important strategy for any business. When you are small it may seem pointless. When things are going well it may feel an unnecessary cost. When the proverbial hits the fan, or we have a global pandemic! Then the protection of the value in the holding company can protect everything that you have worked hard to build and can secure your future or provide the resources to start again.
Once the concept of two companies makes sense, what about adding more subsidiaries to spread the risk further. Many care home operators and hoteliers run each home/hotel in a separate company so a catastrophe in one does not damage others. Some clients run online and offline businesses in different companies as they have different business models and they may want to sell one part but retain another.
Business structures will impact on risk, tax, practical commercial issues and many other issues. The key is to understand your options and seek advice. One company may be simple, but it is rarely right.