At some point, during your aspiring business, in order to meet your ever evolving commercial, financial and legal objectives, it is inevitable that you will need to review and revisit the corporate structure of your company. There are a number of reasons why you may want or need to consider such a reorganisation.
These include but are not limited to the following:
To consolidate the group structure
Expansion may have led to a number of companies operating that would operate better together. You therefore may wish to consolidate and simplify the group structure in order to reduce the costs of running multiple companies. This will also free up the administrative burden on key staff so that they have more time to focus on the business.
To split the group structure
Alternatively, the objectives of the different business strands within one company could be no longer aligned, and it would be better if the companies operated apart. A reorganisation allows the different divisions of the business to be split through the creation of subsidiaries. This is particularly useful where a company wishes to sell only part of its business.
In preparation for an acquisition
Reorganising the corporate structure of your business may be necessary to allow a new company purchased to slot into the corporate structure in the most appropriate place.
To reduce risks
The creation of a subsidiary could also reduce financial risk if there are concerns that a particular division may be loss making.
To save money
It some instances, consolidating multiple companies could lead to a reduction in compliance costs, for example, for the preparation of annual accounts as well as VAT and corporation tax returns.
To move around assets
This applies when cash has been used to purchase assets which are no longer appropriate to hold in the company. You may want to move those assets around the group structure to ensure that they are in the most tax efficient place.
To create tax advantages
Reorganising your corporate structure may create tax advantages in order to create a more tax efficient corporate structure.
A corporate reorganisation may involve:
- Dissolving a company, which is no longer required as part of the group
- Setting up a new holding company, in order to own the assets or shares in subsidiaries and to manage and control the subsidiaries
- A demerger to split different strands of the business
- A merger to unify different strands of the business
- A capital reduction to create distributable reserves or to eliminate or reduce losses of the company
- Share exchanges and the subsequent hiving up and down of the company
- Business transfers; and / or
- Reorganising the share capital, for example, to create tracker shares in subsidiaries.
Although this cannot be considered a complete guide, below are some key considerations to bear in mind if you are considering a corporate reorganisation.
The reorganisation could give rise to tax liabilities in respect of stamp duty on the transfer of shares, stamp duty land tax on the transfer of any property, VAT, and corporation tax on any income generated. It could also lead to the loss of tax reliefs. It is therefore important to seek professional legal and financial advice from the outset to ensure that the reorganisation takes advantage of the applicable tax reliefs.
Where a business transfer occurs, a transfer under the Transfer of Undertaking (Protection of Employment) Regulations 2006 (TUPE) may occur. Under TUPE there are strict procedural requirements, such as a consultation process that must be followed. It is important that you are aware of these requirements to avoid any employment claims made by your employees. If TUPE applies the employees’ job, including, employment terms and conditions transfer to the new company and their continuity of employment is preserved.
Company law issues
The company’s articles of association will need to be reviewed and possibly amended to permit business transfers as part of the reorganisation. Furthermore, if the consideration for any shares or assets is less than market value this could give rise to a breach of director’s duties, insolvency issues and claims by creditors. It is therefore important to be aware of these issues to avoid falling foul of company law requirements.
Statutory consents and licences
If your business is regulated by the Financial Conduct Authority (FCA), you may need consent from the FCA before transferring any part of your business. Consent may also be required under the Consumer Credit Act. Separate licences may also be needed to carry on the business within a different company.
If you transfer any aspects of your business, you may need to check your existing contracts to determine whether you can transfer contracts to the new business. This may be restricted or you may need to notify your customers.
How can we help?
Moorcrofts, with its extensive experience of corporate reorganisations, can advise on all aspects of this area of your business.
Moorcrofts recently advised a leading recruitment firm and recruitment software provider, Endorsed Group Limited, on multi-million-pound corporate reorganisation. In addition, Extrinsica Global Limited in respect of a capital reduction demerger as part of a wider reorganisation. We are known for working closely with our clients to achieve the best corporate structure for their business and needs.
For practical and commercial advice in respect of the reorganisation of your company’s corporate structure, please contact Teri Hunter on t: 01628 470 004 or e: firstname.lastname@example.org.