Would it make sense to set up holding company?

Would it make sense to set up holding company?

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Hi there,

I'm the founder of a small StartUp and we are about to receive investment through the SEIS scheme. The Start Up has two different revenue streams and therefore we are now thinking to separate these revenues streams into two different legal entities. 

Therefore, we are planning to set up a holding company (Company A). Company A is not going to generate in any revenue.

Company A will then own 99% of Company B, and 90% of Company C. 

Now, even though Company B and Company C would become different legal entities, the day to day business activities will be run by the same people. In other words I will work for Company B and Company C.

This now raises a number of questions.

1) Is this new company structure a good idea?

2) Would the directors be able to work for company B and company C at the same time?

3) Where should directors pay themselves salary? Within the holding company? Or C or B, or in B and C?

4) Once the Company B and Company C declare dividends, these dividends will then be passed on to the Holding Company. Does this count as income for the holding company? I.e. the P&L would be Income (Dividends from subsidiaries) - Operating Cost (Salaries etc) = EBIT?

I would really appreciate your help.

Thanks,

Mike

Replies (2)

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By Minnie136
16th Feb 2014 11:44

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1) There are benefits of setting up a holding company since you are creating a tax group and therefore would be able to offset tax losses in a loss making company against taxable profits in a profit making company.  Also only one VAT return. 2/3)  As you wish, if B and C then you are running 2 PAYE schemes.  4) As a holding company A would normally just hold shares and the dividends received from B and C would not be taxable.  You should onboard an accountant so that you can optimise the structure.  However having 3 companies and potentially 2 PAYE schemes would increase the admin and costs so maybe worth seeing if you can do it all in the one company and explaining what you are trying to achieve?

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By tebthereb
17th Feb 2014 20:53

1) It depends, what are you trying to achieve by splitting the revenue streams and installing a holding company?

2) Absolutely... but to what end? There may not be much to gain from this although it again depends on your intentions.

3) It doesn't really matter. You would probably want to avoid having multiple PAYE schemes on the go for no reason.

4) As touched on the holding company could qualify as a "dormant" holding company if it is not doing anything besides receiving dividends.

 

Cannot agree with previous comment enough that you need to take professional advice on this otherwise you risk a lot of unnecessary costs, penalties, and risk for perhaps little to no benefit. I work for a firm who could help with this sort of thing so let me know if you want proper help.

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