Formation advice

Matt12345 · May 8, 2019

Hi all, new to the forum but hoping someone may be able to offer some advice.

I’ve been operating under a limited company for a few years now, providing web based software and consultancy to a pretty broad range of clients.

I’m now looking to launch a new, standalone product under its own brand. Whilst it’s still technology based it shares little else with the way my current company works, so I would prefer it exist as it’s own standalone entity.

Because of the above, I’m looking at forming a second Ltd company to operate this new business under.

My question is, is there any merit at all in making my pre-existing Ltd a shareholder of NewCo? Or should I just follow the usual 100 shares @ £1, making myself the main shareholder?

For context, ExistingCo tends to deal with larger invoice amounts (and is VAT registered), NewCo will operate on considerably smaller margins, meaning success will require a decent volume of small transactions.

Hopefully I’m overthinking this.. The new service is almost ready to go but I’m holding back on a launch as I’ll happily admit I’m no expert in this field and keen to try and make sure I’ve set things up properly / most effectively from the start.

Any sense checking / advice that’s available would be massively appreciated.

Nochexman · May 9, 2019

Matt12345 said:
My question is, is there any merit at all in making my pre-existing Ltd a shareholder of NewCo? Or should I just follow the usual 100 shares @ £1, making myself the main shareholder?

I can't think of any reason to link the two in this way. Why have you thought otherwise?

Given that you are holding back, have you thought about trialing your new idea simply as a sole trader?

Matt12345 · May 9, 2019

Hi Peter, Thanks for your reply. To be honest I think I am overthinking as I couldn't see an advantage either but not being an expert in this field I wanted to double check with more knowledgable folks in case there was any kind of advantage to either business.

Nochexman said:
Given that you are holding back, have you thought about trialling your new idea simply as a sole trader?

That did cross my mind, the potential difficulty being we'll essentially be fulfilling a service on behalf of other businesses, acting as their agent and as part of which I need the client to authorise NewCo to act on their behalf with a couple of third-party services we use - my concern would be if I were to change the legal structure of NewCo say 6 months in, this could cause a headache in re-authorising the new entity to act (if that makes sense), so logic led me to think it would be best to set things up from the outset to provide as much longevity as possible.

Holding back only really to ensure I structure the business properly, we've been working on proving out the demand for the product and the model (as far as you ever can without getting the client's cash in your hand!) and have a few clients ready to go at launch so ticking these boxes is really the last step.

Thanks again for the reply

Ecomccountant · May 9, 2019

By creating a group where TOPCO owns NEWCO then you can potentially use any losses on the profits of the other company. Especially if NEWCO is going to incur losses. This reduces your tax and maximizes cash. I would ask your accountant to set this up for you.

If they are owned by you the INDIVIDUAL then both will have separate tax structures. You would also not risk losing both companies if one becomes insolvent.

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