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Family Business Structure & Purpose

Questions: company operating different revenue generation models and children generating income

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I have a couple of questions about starting a family business, a business that I would like my children to run and own as a team once myself and my wife have past (old age and eventually death).

Last tax year ending April 2019 I gave up full time employment and this tax year have started doing some adhoc consultancy and advisory work around business transformation (self employed). I’m currently about to start a short engagement in Spain.

My wife has just qualified as a dietitian and is looking to do consulting work, providing nutrition advice to both businesses and private individuals.

My eldest daughter who is 15 has a Saturday job and is looking to sell her art work.

My youngest daughter (11 years old) has a big following on instagram and YouTube with gaming fans, and has potential of earning  income from advertising if her followers carry on increasing. She is also interested in selling merchandise on eBay.

I would like to set up one company of equal shareholding for our 4 family members. As a family we have agreed that we should invest any profits into property within the company which will in turn yield a revenue stream. We will take no personal income or profits within the first 4 years.

I suspect as I get older my activity along with my wife’s (although she is a bit younger than me) will reduce and my children will become the main revenue generators along with the properties we have purchased.

Questions:

 

  1. Can we setup one company which has different revenue generating elements ranging from, consultancy, advertising,   property rental and item sales (art & merchandise)?
  2. I understand that my children can’t become directors until they are 18 but can have an equal shareholding in trust. Do you foresee any complications with us structuring the company this way.

 

The ultimate goal of setting the company up is a pension for the parents and a long term job for the kids just in case they can’t get employment else where (safety net).

 

Thanks in advance

 

Iain

Replies (34)

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By WhichTyler
21st Jul 2019 12:22

Mixing such different sorts of trade in one entity is likely to be problematic, especially with different outcomes (how will you decide if your need for pension overrides childs need for a job, what happens if child gets a big job ant another company etc etc)
It is also hard to see what synergies such different activities will bring. Also any goodwill seems closely associated to each individual.

You can probably achieve the ends you want more straightforwardly...

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By atleastisoundknowledgable...
21st Jul 2019 12:19

1. Yes
2. Maybe. As with most open-ended questions like that, you should sit down & speak to someone who can understand the circumstances of everyone involved. It’s probably a good plan, but some time/money spent now may well reap rewards over time.

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By Accountant A
21st Jul 2019 16:15

So your "business transformation" advice, your wife's nutrition advice, child 1's artwork and child 2's internet activities are all worth paying for but accounting, tax and business structuring advice are expected for free?

Just so I understand where you are coming from.

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Replying to Accountant A:
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By chambersiain
21st Jul 2019 20:18

Nope I’m happy to pay but want to know if my idea is barking mad. Sounds like it isn’t, so I will engage an expert to set up my company along the lines I’ve out lined

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By JoF
21st Jul 2019 16:29

1) yes
2) yes
It's all very simple. Do what you like. You don't need advice.

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By Tax Dragon
21st Jul 2019 17:08

I don't think you are asking the right questions. The answers are yes and yes, but I'm not persuaded that helps. But you have used a good word: "purpose". So let me ask back at you: for what purpose are you planning to do this? What makes you think doing this would achieve that purpose?

Take a step back.

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Replying to Tax Dragon:
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By chambersiain
21st Jul 2019 20:21

The purpose is to have a family company that we can all grow and benefit from by investing our profits in property. The properties should provide a good steady income stream if other business streams dry up. Simples

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Replying to chambersiain:
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By Tax Dragon
21st Jul 2019 20:46

Ah, you want your kids to fund your pension pot.

Unusual use of a FIC, but I guess it could work - could even avoid some of the usual tax traps doing it that way round. That depends to some extent on the numbers, of course.

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Replying to chambersiain:
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By Tax Dragon
22nd Jul 2019 06:08

I mentioned tax - that's probably one area where you really should take advice. You won't be able to get meaningful answers without it. That's just the nature of the beast.

WhichTyler told you a couple of the issues that are likely to require much more thought, if you want to steer clear of some nasty surprises.

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By paul.benny
22nd Jul 2019 08:49

Don’t do it.

It may not be a big deal for you and your wife to have different activities within one entity. But your children don’t yet have minds of their own – in law or in fact – to be able to make long term business decisions. You may have a great relationships but they will want to be free to make their own choices.

Mixing family and business like this is fertile ground for immense acrimony.

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Replying to paul.benny:
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By Tax Dragon
22nd Jul 2019 09:05

paul.benny wrote:

your children don’t yet have minds of their own – in law or in fact...

…and therefore also for tax.

I wouldn't go as far as "don't do it." But I would say "definitely don't (try to) involve the children's nascent income streams and definitely do take advice before you do anything along the lines proposed."

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By WhichTyler
22nd Jul 2019 11:07

chambersiain wrote:

I would like to set up one company of equal shareholding for our 4 family members. As a family we have agreed that we should invest any profits into property within the company which will in turn yield a revenue stream.

Just rereading this: are you planning to borrow based (in part) on your 11 yo daughters Insta stream and 15 yo's saturday job? Brave man...

And what are you planning to live on for the first four years?

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Replying to WhichTyler:
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By chambersiain
22nd Jul 2019 14:48

I will be loaning the company money from my personal savings

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By ireallyshouldknowthisbut
22nd Jul 2019 11:26

Sheesh. Glad you are not my dad.

Let your kids run their own businesses, and keep your nose well out of it you want them to amount to anything.

The 15 y/old wont need many reasons to hate you, but if not being able to keep per own cash and spend as she sees fit, will I imagine be right up there.

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Replying to ireallyshouldknowthisbut:
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By WhichTyler
22nd Jul 2019 16:05

"Dad I'm going to study fine art at uni"

"But poppet don't you remember we agreed you would be a chartered surveyor so you can run the property business"

I wonder if they will be back in a few years asking if they can 'sponsor' someone through university and claim it as a business expense...

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By chambersiain
22nd Jul 2019 14:47

Thanks for your response. I have long term savings so can live of those. I would like to help build up a business for my children that they can run together focusing on property investment. They also think it’s a great idea and we are a close family. Personally I wished my father had done this for me as well as setup a pension, trust fund and savings accounts. I appreciate other people’s points of view but as far as I’m concerned my wife and I are extremely thoughtful and caring parents

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Replying to chambersiain:
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By Tax Dragon
22nd Jul 2019 15:01

Your daughters should take advice, even if you won't. Have you thought about your obligations in that regard, as their legal guardians?

Just one of the issues: you propose that the company sells your 15 yo's art. How does it come to own that art? (I assume you want some tax efficiency here?)

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Replying to Tax Dragon:
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By WhichTyler
22nd Jul 2019 16:02

Ditto your 11yo daughters image rights and other IP from her Insta feed. Some sort of licence arrangement, perhaps, but no fee..

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Replying to WhichTyler:
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By Tax Dragon
22nd Jul 2019 16:15

WhichTyler wrote:

Ditto your 11yo daughters image rights and other IP from her Insta feed. Some sort of licence arrangement, perhaps, but no fee..

Ooooof!

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Replying to chambersiain:
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By Accountant A
22nd Jul 2019 15:30

chambersiain wrote:

my children that they can run together focusing on property investment. They also think it’s a great idea

Being only 15 and 11, their knowledge of previous property crashes is probably limited, to be fair. I think they may have misinterpreted as you telling them they'd get some free stuff in later life which, to be fair, would have sounded pretty darn good to me as an 11/15yo.

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Replying to chambersiain:
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By Accountant A
22nd Jul 2019 15:31

chambersiain wrote:

my children that they can run together focusing on property investment. They also think it’s a great idea

Being only 15 and 11, their knowledge of previous property crashes is probably limited, to be fair. I think they may have misinterpreted as you telling them they'd get some free stuff in later life which, to be fair, would have sounded pretty darn good to me as an 11/15yo.

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By Vile Nortin Naipaan
22nd Jul 2019 14:58

Don't suppose your wife could knock up a quick vegan-keto diet plan for me, as a favour. I'm getting truly fuching bored with avocado!

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By Vile Nortin Naipaan
22nd Jul 2019 15:55

Why's everybody giving so much focus to the kids? What about my avocado-free vegan-keto diet?

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By Wanderer
22nd Jul 2019 16:13

Can't be the 11 year old's InstaWatsit and YouDoo accounts. T's & Cs say you have to be at least 13 years old.
Similarly eBay say you have to be 18 to have an account so she should shelve that for a bit as well.

Possibly best to encourage her to go outside and play rather than set her up as the next Selena Gomez.

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Replying to Wanderer:
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By Tax Dragon
22nd Jul 2019 16:19

Ts and Cs? Justin says.... oh, [***] what Justin says.

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Replying to Tax Dragon:
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By Wanderer
22nd Jul 2019 16:22

Gotta be able to get a Trust or seven in the arrangement somewhere!

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By justsotax
22nd Jul 2019 16:20

Having seen a family businesses at work one thing is for sure....things never go as planned. And wait until your daughter hits 19 and meets some 30 year old bloke you don't approve of.....

When everyone understands exactly what they are getting it to it is at least a little more clear.....an FIC with the appropriate legal docs in place seems appropriate. Believing that your family is 'close' and therefore there is nothing to concern yourself with is not.....

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By JoF
22nd Jul 2019 17:28

Ive dealt with many businesses where the founder is an entrepreneur, the children are a bunch of know nothing but feel entitled muppets, but the grandchildren have managed to inherit that entrepreneurial gene.

I wonder how the family can agree something when one is 11 and one 15. Legally. Eh?!!

It will end in tears. It always does.

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By Matrix
22nd Jul 2019 18:30

The company would be paying tax on profits at 19% versus wasting all those personal allowances.

You do realise that only the post tax profits would be available for the investment in the rather volatile/new PM tomorrow/it is not the 90s property business?

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By chambersiain
23rd Jul 2019 17:23

I would just like to thank everyone for such poor and unprofessional responses. I may as well have asked a gold fish - you all should consider business transformation charging £5K per day, I thought my profession was full of carpet baggers you lot take the biscuit. I take my hat off to you!

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Replying to chambersiain:
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By Jdopus
24th Jul 2019 10:21

I'm more than happy to join in on the unprofessional responses, I won't even bother being polite about it.

This is a terrible idea and you should strongly reconsider it. You're setting up a company that does the following:

- Ties together your business, family and finances together. In the words of renowned business adviser Christopher George Wallace, "keep your family and business completely seperated". If this turns ugly you're destroying your family.
- Is set up in a structure of 25% equal shareholdings - meaning you're locked in if there's a disagreement between two of the parties. If this turns ugly you're destroying your family and creating a legal quagmire that will cost a fortune to resolve.
- Is set up with each party getting equal rights to the business but each contributing vastly different sums towards it. How much is your teenage daughter's art going to contribute towards buying property? How much is an 11 year old's instagram? What about when if they both decide they don't want to do these things anymore? They will still own 25% of your company. They are going to want their own jobs and their own lives sooner or later. Even if you find this acceptable, it's very likely they'll feel bitter about it later in life if it's perceived as unfair. You're not only setting a company up as a giant powder keg if it does go wrong, you're setting it up so it's almost guaranteed to cause disputes and arguments!

This is an absolutely terrible idea and I advise you to run a mile from this.

Also, since you're in the nature of throwing around insults here's one for you in return - if none of these problems have occurred to you, you have no business whatsoever selling advisory services around business restructuring.

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Replying to chambersiain:
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By paul.benny
24th Jul 2019 10:44

Mr Chambers - I'm sorry that you found the responses “poor and unprofessional”. I for one made my comments in good faith and it seems to me that most of the others posting did likewise.

You came here seeking advice. The answers may not have been quite the advice you sought and even less advice you were ready to hear. But that doesn’t mean that it’s not good or well-meant advice – freely given, by the way.

No-one here has sought to doubt your love or care for your family. But many, including me, have questioned the wisdom of your plan to merge disparate family businesses in a single entity. If you don’t want to hear that – fine. We don’t have to live with the consequences – good or bad - of your choices. But there is no need to be rude if you don’t like our advice. In fact, I suggest that an apology is in order.

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By ireallyshouldknowthisbut
23rd Jul 2019 17:45

Re "I would just like to thank everyone for such poor and unprofessional responses. I may as well have asked a gold fish - you all should consider business transformation charging £5K per day, I thought my profession was full of carpet baggers you lot take the biscuit. I take my hat off to you!"

Well the thing is, you have actually had some quite decent advice amongst the sniping, general comedy and sending you up.

Moreover if you read the fulchin rules before posting, you wouldn't have posted..................this forum is intended for Accountants to speak to other Accountants, hence getting a bit of a kicking.

Anyhow, adjust your monocle, I imagine your 2 kids are all lining up on the stairs to sing you into the house, and your wife has supper on the table and is preparing to listen to your 'wisdom'.

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By LostinSuspense
24th Jul 2019 16:21

Some what if scenarios to consider :

1. What if you and your wife split up before your children turn 18 and she claims entitlement to half the business, arguing the children are minors.
2. What if one daughter suddenly becomes massively successful and resents that her parents / sister end up taking 75% of her generated wealth?
3. What if any of the parties becomes bankrupt / divorces and a 3rd party starts making a claim on the assets others have generated?
4. what if the 11 yr old decides she wants to form a partnership with an external party for online activities because it is more lucrative, how would this be dealt with?

I think the basic premise seems sensible and shows a lot of thought and planning for you and your family's future welfare. BUT this requires a lot of thought and professional advice, as whilst there are significant positives, bad planning at the start can cause severe negatives.

EDIT to add : LLP?

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