Thats what we will do, but I just wanted to arm myself with some info and ideas before sitting down with the accountant.This is the type of question that really needs independent professional business, other, tax, and accountancy advice. You should at the very least talk to your accountant, solicitor, and maybe even other specific professional advisors.
Many thanks Brendan, we did think about just registering an rbn and do a "Trading as" for the new company. But did not want it all too mixed up! One business, the current one, is a service, the new one is a product(s).You do need professional advice, but there is no harm in getting some general principles here to brief yourself before you sit down with your professional advisors.
There are pros and cons to both.
Having two separate companies has operational advantages.
Against that, the benefits of having one as a subsidiary of the other are
- If Company A becomes insolvent, subsidiary Company B is unaffected by it. For example, someone successfully sues Company A for a risk which is not insured.
- If Company B becomes insolvent, the parent is not legally affected, but it would be very bad PR to have unpaid creditors while the parent continues to trade.
- If you ever want to give employees a share of company A, you can do so without giving them a stake in Company B.
- If you want to sell Company B , then you are selling it and can access the proceeds personally. If it's a subsidiary, the proceeds belong to Company A.
- Having separate companies seems simpler in terms of audit and compliance and tax.
Why are you planning two separate companies at all? Why not operate the second business through the first company and don't bother with subsidiaries?
- You can set the losses in one against the profits in the other for tax purposes.
- You can use the cash in the parent company to finance the subsidiary
If there is a good reason for a separate company, my gut would be to keep them totally separate.
If Company B is high risk, then maybe set it up as a subsidiary.
Brendan
Just to note Brendan, each of these benefits apply only in specific circumstances and all hell tends to break loose particularly when parent and subsidiary companies use each others funds without it being technically legal for them to do so.Against that, the benefits of having one as a subsidiary of the other are
- You can set the losses in one against the profits in the other for tax purposes.
- You can use the cash in the parent company to finance the subsidiary
Many thanks. It will mainly be just a startup loan, to be paid back.Just to note Brendan, each of these benefits apply only in specific circumstances and all hell tends to break loose particularly when parent and subsidiary companies use each others funds without it being technically legal for them to do so.
The OP really needs here to focus on their consultation with their accountant or tax advisor.
To be honest, in relation to something like this, I wouldn't be posting online even anonymised details of what you're doing. The minefields we negotiate in implementing changes of this nature are sufficiently perilous as it is, and it's a very small country.Many thanks. It will mainly be just a startup loan, to be paid back.
More ammo for the meeting with the accountant!
Doing both is very difficult at the best of times, coming from a services mindset it can be hard to spend money on product development without the expectation of immediate return and if things get tough/busy in the services business, working on the product will tend to suffer. You might also want to raise funding to develop the product, this can be much easier without the baggage of being a services company! You should also consider whether you might want to sell the product down the road if it becomes successful while potentially retaining the services business if it is paying for your lifestyle or would only survive with you involved.One business, the current one, is a service, the new one is a product(s).
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