Separate companies same Director buy from each other

Separate companies same Director buy from each...

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Hi

I am a Director of an established company. I am setting-up another company which I will also be a Director of.

Call them 'Company A' and 'Company B'.

Company A will buy goods from Company B. Those goods will be sold on to the customers of Company A (Company A is a reseller). Company A will invoice those customers.

Company B will buy those goods in from a completely unrelated company - or companies, dependant upon the product to be supplied.

Company B will then supply said goods to Company A and invoice company A for the goods supplied. Company A will pay Company B.

Is there anything wrong with the above scenario in a situation where I am a Director of both companies A and B?

Thanks,

N

Replies (18)

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By johngroganjga
07th Feb 2016 19:56

Wrong?
Nothing wrong as such, but unless there is a point to the arrangement it may be a waste of time.

What objective are you trying to achieve?

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Replying to DJKL:
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By bignige
07th Feb 2016 21:05

The objective...

johngroganjga wrote:
Nothing wrong as such, but unless there is a point to the arrangement it may be a waste of time. What objective are you trying to achieve?

Not sure how to explain that really!

Company A has established customers built up over 3 years - but the name of the company does not lend itself to selling the products that I have now diversified into selling (which has been an evolutionary development driven by the customers of Company A).

So, company B has been set up with a name that describes the products that it sells.

And in order to kick start sales for company B the plan in my original mesage came up.

Eventually, company B will be standalone and selling to its own database of customers.

Above may not make sense - but it does to me! Lol.

An analogy could be - would you buy legal services from an accountant - even though the accountant may be quite capable and even dual qualified? 

Most people would expect to a Solicitor - in a business that is described as a 'Solicitors practice' or 'Law firm'.

I have already had one supplier refuse to supply Company A because of the nature of the difference between company A's name and the products that the supplier sells!!

N

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By petersaxton
08th Feb 2016 06:32

Why?

Why doesn't Company A buy these goods from the unrelated company?

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RLI
By lionofludesch
08th Feb 2016 08:48

@bignige

Well, you know best, obviously.  But everyone else thinks you're adding an extra layer of complexity to the structure.

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By petersaxton
08th Feb 2016 09:02

Companies C and D

Can't you form another couple of companies (of which you are a director, of course) and include them in the supply, invoicing and payment train?

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By SKCOX
08th Feb 2016 09:20

Thought I saw what you meant at first

But actually I don't. Suppose company A is Rare Stamps Ltd and company B is Hand Grenades Ltd. If you want to diversify into hand grenades I can understand why you would set up company B. But why would Hand Grenades Ltd then sell the hand grenades to Rare Stamps Ltd to market them?

Perhaps I have misunderstood.

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By johngroganjga
08th Feb 2016 09:59

To extend the above helpful analogy further, what does not make sense here is that the OP wants Rare Stamps Ltd to sell hand grenades.  But his problem is not that customers won't come to Rare Stamps Ltd to buy hand grenades - he seems entirely confident that they will - but it is that Rare Stamps Ltd won't be able to buy hand grenades to sell to them - which make no sense.

The idea that, all things being equal, suppliers will refuse to accept orders from customers whose names they don't like is one that I find very strange.

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By Mr_awol
08th Feb 2016 10:49

Sounds like the OP doesn't want company A to 'officially' trade in the new product line, but wants to sell the new products to its existing customer base.

So if im customer Z, and have been buying from company A for may years, and I want New Product H - then Company A tells me that although they don't sell that, they can get it as a one off.  If the product line takes off then company A introduces company B - but if it doesn't then company A stops supplying new product H and (publicly at least) there is no failed expansion plan

Pointless - yes.  Harmless - yes also

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By carlh
08th Feb 2016 12:31

No

but you would have to declare interest in both company accounts notes (related party disclosures) 

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By kiwilondon99
08th Feb 2016 14:51

is this to setup a wholesale - + retail buisiness

 

where W may sell to ,others   + competitors to A  where the product[s]of W have a wide appeal

review VAT and any duty / bonding / transportation  issues if importing  in order to get correct 'retail' pricing

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By bignige
08th Feb 2016 18:24

Confused.com

Hi

Many thanks for all the comments. I am now equally confused - so here is the actual scenario.

Company A is a company that publishes magazines and designs and prints for customers. Income is generated from sales of adverts in the magazines and printing. The company is a reseller of print products - so, buys in printed products and sells them on to its customers.

Company A has started to receive requests from customers to supply branded clothing - including PPE - eg: hi-vis vests.

A person has come along who wants to join the business as a Director - but knows nothing about publishing/printing

Company A has approached a PPE supplier/manufacturer - they have refused to supply a company that operates in the printing industry - it doesn't make sense to them for a publishing business to be selling PPE.

So, to get the new Director on board it seems simplest to:

1. Form a new company with a name that mentions PPE and workwear - with its own branding, logo, retail web site etc

2. Until 1 (Company B) is established and generating revenue Company A will promote and sell the PPE products under the publishing company name.

3. To generate income for company B until the web site etc etc are in place it will supply company A with PPE which company A re-sells to its customers.

4. Once Company B has all marketing collateral, web site etc in place it will promote and sell as a standalone business.

5. Once 4 happens, Company A will revert to solely promoting advertising and printing.

Maybe it is a complicated and ridiculous idea after all...

N

 

 

 

 

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Replying to Paul Crowley:
Stepurhan
By stepurhan
08th Feb 2016 21:45

Refused to supply?

bignige wrote:
Company A has approached a PPE supplier/manufacturer - they have refused to supply a company that operates in the printing industry - it doesn't make sense to them for a publishing business to be selling PPE.
This is the part that doesn't make any sense.

Are Company A asking for discounts based on the amount they expect to order? Will the PPE supplier/manufacturer somehow risk their reputation in this arrangement? Basically what is the downside for the PPE company of the greater income (and profits) they would receive by taking on Company A as a customer?

As it stands, the given reason for not supplying Company A sounds entirely irrational. If that is truly the case, what makes you think they will be any more ready to trade with a company that has only just come into existence?

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By CaptainNick
08th Feb 2016 19:38

Simpler, no?

It seems to me that it would be much simpler to do it like this:

1) Rename original company from "Bignige Printing Ltd" to something that is more ambiguous such as "Bignige Ltd" whilst still trading and having a website as Bignige Printing.

2) Set up the PPE brand and website as a separate division under "Bignige Ltd"

3) Make the new Director head/manager of the PPE brand if it suits.

4) Buy the PPE gear as "Bignige Ltd" and sell/market it from whichever brand or site is most suitable to the market.

Only one company is needed as long as you can get the shares right.

 

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By petersaxton
08th Feb 2016 20:04

Very persuasive

"A person has come along who wants to join the business as a Director - but knows nothing about publishing/printing"

Do you need this person? You haven't exactly produced a persuasive reason. Maybe you don't think it's important.

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RLI
By lionofludesch
09th Feb 2016 08:43

Ok Nige

Well, nige, ok, my answer to your OP is "no"

I can see some thread of logic in what you say but it still seems a long way round the houses.

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By bignige
09th Feb 2016 16:29

Decision

Many thanks for all the comments.

We have decided to set up a new brand name for the PPE (but not a separate company), make the proposed Director of the PPE brand a manager.

What is the best/correct way to describe the relationship between the PPE brand/product and the publishing company- for the purposes of promotional materials etc - and so we can invoice in the name of the publishing compnay?

Is it 'a part of (the publishing company) or 'a subsiduary of (the publishing company)' or '(the publishing company) incorporating (the PPE brand name) - or, something else?

Rgds

N

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By petersaxton
09th Feb 2016 19:06

"Is it 'a part of (the

"Is it 'a part of (the publishing company) or 'a subsiduary of (the publishing company)' or '(the publishing company) incorporating (the PPE brand name) - or, something else?"

It can only be a subsidiary if it is a company.

It's part (or a division) of the publishing company.

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Scalloway Castle
By scalloway
09th Feb 2016 19:10

Trading name

You need to disclose the limited company name on all communications. You can use the brand name to head invoices and include a form of words such as "Brand Name is a trading name of PPE Ltd"

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