Separate the Limited Companies or not

Separate the Limited Companies or not

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My client has a limited company for her preschool care facility.

She is opening a second identical facility in a new location.

Her husband is advising her to start a new separate LTD for the new location - I can't see a good reason to do it.

The LTD is exempt from VAT - so turnover isn't an isssue.  There is relatively little risk of trouble with creditors if the business were to fold.  There are no long term contracts that would have to be paid off - and at present - no long term staff that would accumulate significant redundancy - HMRC could become a significant creditor if the business was in financial difficulty.

Having two separate companies - or more if she starts a another new facility - just increases my fees and makes bulk buying and payroll and  staff sharing more complicated.

Are there any significant issues I'm missing here - any views,

Many thanks

Replies (4)

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RLI
By lionofludesch
25th Apr 2014 14:26

Sounds great but ......

..... in my experience, clients just aren't up to keeping their businesses separate.

Lay it on thick with the do-you-really-want-the-extra-admin? and how-exactly-do-you-see-the-benefits-of-this? points.

The husband may have a good reason but, more than likely, he hasn't thought it through.

But it's win-win - if they don't take your advice, you can charge extra fees and say "well, I did warn you my fees would be more".

Thanks (1)
Me!
By nigelburge
25th Apr 2014 18:08

These words send shivers down my spine

"My husband says"

Much worse than "the man down the pub says..."

You can rubbish the man down the pub, but even if the husband is talking complete and utter round objects, are you really going to convince his wife?

I don't envy you one bit and I am very sorry to be of no help whatsoever.

Thanks (1)
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By Sheepy306
27th Apr 2014 22:20

Agree with Basil
Personally I would strongly advise 2 Ltd Co's. Future sale can be very important, as Basil correctly identifies. Also I find that monitoring the 2 facilities is far easier if they're separate, when 2 businesses are lumped into 1 company it's so easy for 1 to be performing badly but it's poor performance is masked by the profitability of the other (although careful structuring of the accounting software may reduce this risk a little).
Even though it's difficult to see risk right now, fast forward 10 years when cash flow may be tight, an employee causes trouble, 1 nursery gets a bad reputation, the landlord causes trouble, ill health or personal circumstances mean that you have to exit that long lease, a strategic liquidation etc, all kinds of other unforeseen circumstances. Having that flexibility could be vital.

Thanks (1)
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By Sheepy306
27th Apr 2014 22:27

Incidentally, I prepared a forensic report only a few months ago for complex funding purposes, I had to separate out 2 care homes operating through 1 Ltd Co, it was messy, cost the owner several thousand pounds and the first bank rejected the proposal largely because of the structure of the 2 businesses. It caused unnecessary stress and £'s to the owner at a time that they really didn't need it. Successful in the end i'm pleased to say though.

Thanks (1)