Company Structure Advice (LLP, LTD)

LTD company as a majority partner of multiple LLPS

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Hello,

 

Looking for some clarification around company structure.

 

The proposed structure is as follows:

 

LTD company (master franchisor)

 

LLP x (infinite) with franchisee as partner but also LTD franchisor as corporate partner.

 

Out of the LLP, the franchisee would pay all running costs etc, the profits would then be split as per the agreement. This would see the master franchisor take drawings from multiple LLPs (franchises).

 

A few questions this raises:

 

1) the LTD franchisor would be corporate partner in potentially hundreds of LLPs, would HRMC frown upon this? 
2) From a tax point of view, would the drawings of profits be classed as other operational income to the LTD and would be subject to standard corporation tax? 
3) Is the LLP percentage owned an issue? For example if the LTD had a majority stake i.e > 75% 
4) If the franchisor LTD company wanted to do promotions (which could include giveaways) to the customers of the LLPs, would this be an issue?

Thanks in advance!

 

Jack

 

Replies (7)

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By Matrix
21st Jun 2018 17:28

You will need bespoke tax advice if you think it is a goer. However I don't think many franchisees would buy into an arrangement which is owned >75% by the franchisor.

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Replying to Matrix:
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By jackbramius
21st Jun 2018 18:01

Hello, thanks and appreciate the concern over actually selling it.

See it as the franchisor providing all upfront costs, equipment, software and support etc.

That aside, you aren’t seeing a problem with the proposed structure itself?

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By Manchester_man
21st Jun 2018 17:34

Doesn't sound like a particularly good deal for the franchisee.

You really need proper, paid for advice.

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By Manchester_man
21st Jun 2018 17:37

Wow, I must be a slow typer! Post crossed with Matrix.

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paddle steamer
By DJKL
21st Jun 2018 22:12

Surely the Limited will be taxed on its share of LLP profits whether drawn or left within the LLP; the drawings do not create the tax point the earning of the profits do.

Mixed partnerships do give rise to certain tax ramifications and as the entire business is being proposed to be structured by this path you might want to take some specialist advice both re tax and general business protection.

e.g.Using companies throughout ought to at least be considered as an alternative, especially with a 75% interest and possible efficient use of losses.

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By Tax Dragon
22nd Jun 2018 06:49

You suggest an unlimited number of franchisees. What is the current number?

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Replying to Tax Dragon:
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By jackbramius
22nd Jun 2018 09:59

Somewhere up to 100?

The 75% figure was only to ask the question, I doubt that sort of percentage would work for a franchisor franchisee relationship!

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