Dear all
Sorry if this has been covered before.
Following an MBO, we have a top co which holds all the shares in trader and debt used to purchase the shares and hence losses due to the interest charges.
Trader is also loss making.
Is there any problem with top raising a management charge to trader thus absorbing the interest costs rather than leaving trapped deficits in top Co?
Top Co has no costs other than interest and compliance cost.salaries are charges in the trader.
Replies (5)
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Normally...
... the answer to this question would be 'Ask your accountant', but since this is clearly a sizeable undertaking (MBO, group structure, external finance, compliance costs), I will instead suggest that you ask your Finance Director
Doesn't have to be...
But the complexity and risk associated is usually only worthwhile for more valuable businesses.
You say: 'We have..' so I assume you are a shareholder or director of the business, and took part in the MBO. Did you take professional advice about tax implications of the deal on future revenues? If so, why not consult your adviser? If not, seek one pronto. They will be able to tell you what the implications of your two options are in this scenario. I am not an expert in this area, but it seems that the holding co doesn't have the resources (principally staff) to provide any management services to the trader, so any notional charge for doing so is something of a sham, but others may know better.
Good luck