Renting Ltd Companies

What business model should it be?

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Hi Experts

 

A client runs Ltd company on the behalf of director. Client gives agreed %age of profit to the director and keeps all the remaining business profits. The question here is what type of business entity client should use for these type of services: sole tradership or Limited company? Because he cant be a director for all the companies which he will run to get the profits as dividend or salary. So what will be the best way to get his share of profits?

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By Tax is always taxing
02nd Jun 2022 08:45

Why have you titled this "renting ltd companies" sounds like a dodge to veil ownership.

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By Hugo Fair
02nd Jun 2022 08:55

Sorry, but facts not (incorrect) assumptions are needed here.

For a start, what does "client runs Ltd company on the behalf of director" mean? In other words ... what is the role being undertaken? / how is it defined contractually by your client's client?

Presumably there IS a contract, given that "client gives agreed %age of profit to the director and keeps all the remaining business profits" is too vague (what definition of profit)? It's also open to manipulation by whoever is preparing the accounts (your client?) unless the terms and processes are clearly set out.

You then say "Because he can't be a director for all the companies which he will run to get the profits as dividend or salary" ... but being a director doesn't of itself entitle anyone to a declared dividend (which is for shareholders), so is client actually being offered shares as part of the remuneration package?
And, FWIW, why can't he be a director for all the companies (he may not wish to be but there's no reason why he *cannot* do so)?

"What will be the best way to get his share of profits?" is, I would have thought obviously, going to be dependent on many other factors (relating to what his client wishes to achieve / your client's other activities and/or financial objectives / the nature of the businesses / etc) ... but most importantly on the contractual nature of the relationship - and, as I said, the facts.

Basically you don't decide on the "type of business entity" before determining the nature and purpose of the business ... that's the wrong way round to do things.

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Replying to Hugo Fair:
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By paul.benny
02nd Jun 2022 09:27

+1 to all of above

I'm actually bemused the description in OP. Director gets a % of profit and Client keeps the rest. What about shareholder(s)? It's their profit.

And if Client is actually doing the work, what's Director doing to justify his/her %?

If the arrangement is as described, it smells bad. Is there some money-laundering or other fronting going on that you would be abetting?

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Replying to paul.benny:
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By Justin Bryant
02nd Jun 2022 10:02

That's a big leap of logic there surely (that would put Basil to shame)?

If it was that dodgy it would be in cash with no need for such advice in the 1st place.

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Replying to paul.benny:
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By David Ex
02nd Jun 2022 10:23

paul.benny wrote:

If the arrangement is as described, it smells bad. Is there some money-laundering or other fronting going on that you would be abetting?

Agreed. OP might want to research “shadow director”.

In any event, the OP shouldn’t be offering (what is presumably) tax planning advice on what he/she gleans here from a few bemused comments on an unclear sets of circumstances.

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Replying to paul.benny:
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By Accaols
02nd Jun 2022 10:49

The query is to get the advise whats the most tax efficient way in this scenerio. There is nothing like money laundering or any tax avoidance in this case. Consider this scenerio for single director small companies.
Director will get his agreed salary and pay taxes on it so HMRC shouldnt have any issues.

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Replying to Hugo Fair:
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By Accaols
02nd Jun 2022 10:43

Ok rying to explain by an example: Mr A created an UK Ltd company and has made a contract with Mr B to run company on his behalf. In return Mr A will get agreed monthly salary from his company and rest of the profits will go to Mr B. This is because Mr B is working full time to run Mr A Company. Mr B has many other clients like Mr A.
So is it ok to be a director for 10-20 companies for Mr A? Or should he become shareholder and get dividends from all his clients?

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Replying to Accaols:
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By David Ex
02nd Jun 2022 11:15

Accaols wrote:

So is it ok to be a director for 10-20 companies for Mr A? Or should he become shareholder and get dividends from all his clients?

You need to pass this to someone who has the relevant knowledge and expertise. You cannot be providing advice on matters like this for reward if it’s outside your technical abilities. No-one knows everything and everyone has their limitations.

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Replying to Accaols:
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By WhichTyler
02nd Jun 2022 11:18

Accaols wrote:

Ok rying to explain by an example: Mr A created an UK Ltd company and has made a contract with Mr B to run company on his behalf. In return Mr A will get agreed monthly salary from his company and rest of the profits will go to Mr B. This is because Mr B is working full time to run Mr A Company. Mr B has many other clients like Mr A.
So is it ok to be a director for 10-20 companies for Mr A? Or should he become shareholder and get dividends from all his clients?

It depends... (partly on what you mean by 'ok'). If I were you, I would advise Mr A that I don't have the experience or expertise to advise on this complex situation and he should get specialist legal and financial advice. You can follow along for the ride, as those specialists won't want to do the nus and bolts, but you will be better informed about the process and the client will be protected

The way you have described it sounds like a potential nightmare for a number of reasons

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Replying to Accaols:
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By Hugo Fair
02nd Jun 2022 11:35

OK, I'll be more direct ... you cannot get precise answers to vague questions - and you certainly shouldn't rely on any from a public forum as professional advice.

If you (or really your client) are prepared to appoint an adviser then you'll need to remove the veil of secrecy regarding all the 'whys' (the nature of the businesses and of the role of the people involved and their relationship and so much more).
Otherwise you might as well throw darts randomly at pieces of paper with the options written on them!

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Replying to Accaols:
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By DKB-Sheffield
02nd Jun 2022 12:51

Please confirm... are all 10-20 companies (referred to in your post of 10:43) OWNED by Mr A?

Or is one company owned by Mr A, one by Mr Alpha, one by Mrs Beta etc.?

In other words is Mr B working for 10-20 companies owned by the same person, or is Mr B (effectively) working for 10-20 different people?

It won't cover all of your queries, but it may add some light to the situation and help determine what, if any, trade Mr B is carrying out.

Incidentally, of course it is possible for Mr B to be a director of 10-20 companies. Why would you think it isn't? Whether it is advised, in the circumstances, I couldn't say!

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Replying to DKB-Sheffield:
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By Hugo Fair
02nd Jun 2022 13:23

For that matter, does "running the company" involve having to manage lots of employees of the company? Or is Mr B the sole operational resource in each company? How much time is required to run each company? What happens when a company makes insufficient profit to pay Mr A's salary? Why doesn't Mr B set-up the companies himself? And so on and so on.

So many questions, so few years in which to extract all the answers!

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By Justin Bryant
02nd Jun 2022 09:28

I would have thought a H&W (or BF&GF) LLP is good option if annual profit is at least around £100k, so it can be split tax efficiently and of course you ring-fence the risk.

IR35 risk is lower now with a well drafted contract per my recent comments here:
https://www.accountingweb.co.uk/any-answers/disagreement-with-employer-r...

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By Matrix
02nd Jun 2022 13:39

What if the company is loss making?

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Replying to Matrix:
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By Accaols
02nd Jun 2022 13:50

Matrix wrote:

What if the company is loss making?

Director will only take money if company is making profits.

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Replying to Accaols:
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By Matrix
02nd Jun 2022 13:55

It sounds like Mr B has the equity (risk) funded in a debt arrangement by Mr A so what is the reason for Mr B not owning the shares?

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Replying to Matrix:
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By Accaols
02nd Jun 2022 14:10

Mr B doesnt want shareholding. He will only run the operations and take the profits. Thats why he is prefering to keep this through his sole tradership but it seems he is meeting the criteria as an employee as per so far discussion. SO the director is doing nothing, bearing the risks and get his fixed income.

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Replying to Accaols:
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By Matrix
02nd Jun 2022 14:21

How is Mr A bearing the risk, is there a capital injection? What is his salary for?

If this is Mr B’s day to day business why isn’t he just invoicing a commission from his own entity? But I am not suggesting this is the optimal structure and you haven’t advised whether A and B and all the companies are connected or the driver (is it to avoid NI and do you think it works?).

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Replying to Accaols:
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By DKB-Sheffield
02nd Jun 2022 14:41

Accaols wrote:

Matrix wrote:

What if the company is loss making?

Director will only take money if company is making profits.

You've only answered part of the question there!

If Company X is loss-making, Mr A (director and shareholder) will not receive a 'salary' (or whatever you deem the payment to be). That is your answer.

What about Mr B (employee/ consultant... whatever the term would be)? Does he have to make good the loss? This may be achieved by contributing 'cash', from future profits (i.e. not taking an income for a number of years), plus other options?

I'll be honest, the whole thing doesn't sit right with me. There is clearly some elaborate planning scheme underway (particularly if my unanswered question is answered in the affirmative, and all 10-20 companies are "owned" by Mr A), but I fail to see why? As Matrix has asked... "what is the motivation?". Indeed, why, in this elaborate scheme, is Mr B 'self-employed'?

Please could you confirm... Mr B is not a disqualified director, is he? It is one of the many reasons I can see that Mr B would not wish to be a director or hold a controlling interest in the company!

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Replying to DKB-Sheffield:
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By Tax is always taxing
02nd Jun 2022 16:07

Disqualified was my initial thought... but the more he posts the more confused i get with A, B (and if there is a C to J).
Could also be a dodge on VAT registration - lots of small businesses in different names.

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Replying to Tax is always taxing:
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By DKB-Sheffield
02nd Jun 2022 16:22

Aye. Or a forward-thinking post 04/2023 CT arrangement (although probably not as taxable profits would likely be zero - I guess?!). The scope of possibilities is pretty vast!

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By lesley.barnes
03rd Jun 2022 10:20

Can you tell us what sector 10-20 companies the individual works full time for? Are these directors based overseas by any chance? Is property involved? I can't get my head around why someone would "rent" 10-20 companies rather than set up their own company and enjoy all profits from that for themselves. "Renting" suggests the client is the driving force behind the companies paying the Directors rental fees rather than an employed by the Directors. I would have thought that running a couple of companies successfully would have been more than enough for one person but 10-20, there can't be much involved in them. Could you give us more detail without breaking confidentiality?

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Replying to lesley.barnes:
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By paul.benny
04th Jun 2022 13:01

The OP has been most vague about this odd-sounding arrangement up to know. I doubt s/he will cast any more light on it, possibly, because s/he also doesn't understand it.

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By Paul Crowley
04th Jun 2022 17:11

Not sure that we are really any way further forward than first reply from Tax is AT
@OP
How can B be working full time on each of the companies?
Best to find out the facts and state then in the opening post, otherwise respondends will need to make assumptions

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Replying to Paul Crowley:
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By Tax Dragon
05th Jun 2022 01:13

Having 20 or so fulltime jobs isn't unusual Paul - ask any mum.

But the scenario in the OP does not sound nearly so wholesome. Most honest businessfolk don't hide behind 20 or so puppet director/shareholders.

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