As you are probably aware there are MANY different ways to structure your business holdings if you have multiple trading and investment companies but trying to decide which structure to take is a tough decision. Why? Because there isn’t one CLEAR answer, it really depends on your long term plans. Below is a little list of different business structures with some of the PROS & CONS of each.
Separate Limited Companies
Structure:
- Trading business as a limited company
- Investment portfolio held in a separate investment company
- Buy-to-let property in a separate property company
Pros:
- Limited liability protection for each entity
- Flexibility in profit extraction and reinvestment
- Potential tax advantages in that we have three different entities for CGT purposes, VAT and capital allowances
- Easier to sell or transfer individual parts of the business
Cons:
- Higher administrative costs (multiple annual accounts, tax returns)
- Complexity in managing multiple entities
Holding Company Structure
Structure:
- Holding company owns:
- Trading subsidiary
- Investment subsidiary
- Property subsidiary
Pros:
- Centralized control and management
- Tax-efficient movement of profits between subsidiaries
- Asset protection
- Potential for tax-free dividends between companies
Cons:
- More complex to set up and maintain
- Higher initial costs
- May attract more regulatory scrutiny
Mixed Structure
Structure:
- Trading business as a limited company
- Personal ownership of investment portfolio
- Buy-to-let property held personally or in a limited company
Pros:
- Balances simplicity with some tax efficiency
- Keeps simpler investments outside corporate structure
Cons:
- Less overall tax efficiency
- Reduced asset protection for personally held assets
Sole Trader with Personal Investments
Structure:
- Trading business as a sole trader
- Personal ownership of investment portfolio and property
Pros:
- Simplest structure to manage
- Lower administrative costs
- Easier access to profits
Cons:
- No limited liability protection
- Potentially higher overall tax burden
- Less separation between personal and business finances
Key Considerations
- Tax efficiency (Income Tax, Corporation Tax, Capital Gains Tax) – Limited liability protection
- Ease of management and administration
- Future growth plans and exit strategies
- Personal vs. business asset ownership
- Regulatory compliance requirements
