Is it ok for a building company to make sales to another company at minimal profit?
Both companies have a common director, the purchasing company being a joint venture that has bought a plot of land to build houses. The selling company wants to keep any profit in the purchasing company to ensure funds will be available for further land costs etc.
We act for the selling company and shall make a related party disclosure in the selling company but wonder if there is any problem with the directors strategy? We often come across these notes saying . .on normal commercial terms.... but clearly this is not the case in this situation!
Any help would be most welcomed!
Martin
Replies (3)
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Normal commercial terms
Can anyone say if there is any problem with a company making some of it 's sales on less than commercial terms?
It means that a higher profit is with the company doing the purchasing on very favourable terms
Would it be caught by any legislation?
Valuation?
Hi Chris
We only act for the general building company which makes sales on normal commercial terms to third parties and the company decided not to make profit on the jobs to the other company where our client is also a director.
So I wonder, what valuation do you mean? I am thinking that the value of the projects in the other company is of no concern to us?
Martin
Relatated Parties
Your disclosure is professionaly suficient if there is an independant valuation of the property. You can take refuge in such.