How does a company protect its assets through restructuring?

How does a company protect its assets through restructuring?

As your business grows, you should regularly consider and review your business structure to ensure it is efficient and it protects your assets and helps you to achieve your goals.

Restructuring your company can protect you and your business assets from future risks. If you own assets such as property within your trading company, your assets could be at risk if your trading company hits difficult times. Creating a holding company could help protect those assets.

In this blog, I'll explain how you can protect assets from future risk and how having a comprehensive asset protection plan which involves considering your business structure could be right for your business.

Why is asset protection important?

Without group structuring, a business’s assets are vulnerable to commercial risks. It is highly recommended to place your assets, such as property, into a holding company that is separate from your existing trading company to minimise risk and protect those assets. With this type of group structure, if, for example, your trading company were to go into liquidation, your assets would be protected.

What is a holding company?

A holding company is a separate parent company created to own a controlling interest in a subsidiary company or companies. They are private limited companies with their own shares and are usually nontrading.

Find out more about why companies set up holding companies in our blog here.

What asset protection strategies are there through restructuring?

There are endless asset protection strategies available, however, put simply, restructuring with the aim of protecting business assets will be achieved by creating a group structure using the following types of companies:

• Trading company: this is the company that your main business operations trade through. It will generate capital, employ people and carry the main trading name of the organisation.
• Holding company: this is used by business owners to separate key assets, or excess cash, from the general risks of a trading company. If this structure is adopted and the trading company is sued, only the assets of the trading company can be liquidated and the assets in the holding company are protected.
• Sister company or subsidiary company: you may have several affiliated sister companies that may hold particular assets, or through which you start a new trade or enable the movement of capital. These sister companies could be used to protect the trading company from any adverse circumstances arising from new trading activities failing or to enable separate management or legal ownership of certain parts of the business.

What business assets can a restructure protect?

The types of valuable assets that a restructure can protect include:

• Capital, other liabilities, loans and investments.
• Plant & machinery.
• Intellectual property.
• People and key expertise.

What are the benefits of restructuring a business?

Often the overall goal or benefit of restructuring and setting up a holding company is to ring fence those valuable assets to protect them.

However, there are a wide spectrum of circumstances where reviewing and reorganising your business structure can help your business achieve the following benefits:

• asset protection
• greater profitability
• harness efficiencies and cost savings
• better manage risks
• reduce tax liabilities and help you realign your business and personal goals
• prepare for business sale of parts of your business
• split parts of the business to other family members
• conclude disputes amongst shareholders
• tax benefits via tax reliefs available
• wealth protection.

When should I restructure?

In the past, restructuring was more often used when a company was faced with financial challenges or during a formal insolvency process. However, today businesses should consider restructuring every time the company or shareholders prepare to or go through a significant change or new phase in the business or personal lifecycle. 

Scenarios, where you might consider restructuring include: 

• purchasing new assets
• periods of significant investment
• periods of fast growth
• a need to improve tax efficiencies 
• working capital improvement
• ring-fencing risk
• when facing financial challenges
• exit planning.

Drawbacks of business restructuring

There are drawbacks to business restructuring that you should be aware of. Our recommendation is to consult an accountant that is experienced in business restructuring for advice on whether changing your company and group structure will work for you and the benefits it will bring to your company.

Some of the drawbacks include:

Complex administration: Each subsidiary must produce its own accounts and keep its own business records separately, which can create complexity and additional costs.

Management challenges: There can be a conflict with subsidiary management structures as often the holding company influences the operating company's policies and management decisions.

Corporation Tax thresholds: Corporation tax rates may be impacted due to the Associated Companies legislation. Corporation tax may be payable at 25% (main rate), 20.5% (marginal rate), 19% (small profits rate) or a combination of each rate.

Depending on the total taxable profits from each company, this may impact the thresholds at which Corporation Tax instalment payments are required.

Professional fees: There will be a fee for set up of the new group structure and ongoing additional fees for financial compliance work and filing on behalf of multiple companies.

Get specialist business restructuring advice from Haines Watt today

We've helped many business owners in a wide range of sectors to restructure their business to achieve their objectives. We will talk to you about your goals and plans and then create a bespoke restructuring plan for you. We will guide you through the process and do all the necessary work involved in setting up new entities, advising you on transferring assets and the tax reliefs and consequences involved.

Read some examples of how we've helped our clients with business restructuring here.

Contact us today at our offices in Chester, Wirral, and Liverpool to discuss your own reasons for considering restructuring your business.

Conclusion

Restructuring can involve setting up separate business entities, such as a holding company and/or subsidiary companies.

In the past, restructuring was often used when a company was faced with financial challenges or during a formal insolvency process. However, these days restructuring forms part of much wider asset protection strategies for businesses and long-term strategy planning for many business owners.

Restructuring can not only protect business assets but can improve the operational, financial, legal, or other structures of your business to maximise profit and to ensure efficiencies.

Restructuring should be considered every time the business goes through a significant change, this could be growth, raising new capital, purchasing a new asset or taking on any new risks such as a major purchase or product launch.

With regular reviews, there may not be a need to rebuild the structure from the ground up every time there’s a change. It can be an incremental evolution in line with your business’s goals.

If you're wondering whether you should restructure or reorganise your company, then check out our recent blog or contact us today.