How many businesses should I open ?

[Deleted member 158308]

Hi,

I have a complicated question I need help with.

Basically, I'd like to offer multiple products but I'm not whether I should do it through one company or multiple.

Please note, the following is only an example:

I'd like to have a business selling plumbing goods; a company like Calvin Klein, and a company like Mac Donalds (not necessarily planning to open the businesses at the same time).

As you can see, the three different products I'd like to sell have nothing in common, and therefore, I have a problem.

The solutions are:

1. Keep all three companies as separate entities.

2. Have a business like Amazon, which means that each of the three businesses will just be departments in one store.

3. Have all three companies as subsidiaries of a fourth company.

From what I understand (forgive me if I'm wrong), out the of the three options listed above, number one is the best legally speaking because it limits liability, is that correct ?

I'd like to know the best option to save me money in terms of shopfronts on Ebay and Amazon; the best option legally speaking (in terms of liability etc), and the best option in terms of the tax man, and any headaches that could potentially arise from running multiple businesses.

I'll be starting one business at a time, over three months, and then adding the next.

Please feel free to point out any other options available and/or any advice or suggestions.

Thank you for your time.

 

[Alan]

If all three businesses are in the same sector, e.g. retail, even if thy are different products, you might fine it less expensive and less administrative headache to have just one company and yet sell as three distinct brands.

 

[Deleted member 158308]

Thank you for your response.

You mean for example Time Warner, who have DC Comics, Cartoon Network and CNN ?

 

[Deleted member 158256]

Unless one business is in a particularly high risk industry, with the potential for some sort of claim that could then cause the downfall of all your other businesses, I would put everything in one company for the following reasons:

1. Losses can be shared easily. This can only be done across companies if you form a proper group with a parent company.

2.Far less accountancy/bookkeeping/payroll fees.

3. Insurance will be easier to arrange for one company. Imagine if an employee gets injured working for one company, but is on the payroll and insured in another company....and with all best intentions of keeping them separate you would end up sharing staff and other costs across the businesses.

4.For corporation tax purposes you will have a full small companies threshold of £300k if you only control one business. This will be divided by 3 if you form 3 companies and it can be difficult to balance if one is very profitable and others are not.

Hope this helps.

 

[Deleted member 158308]

Yes it helps a lot, it's sort of simplified quite a few things mentally for me.

"... This can only be done across companies if you form a proper group with a parent company."


This sounds like the Time Warner example I mentioned above, is that correct ?

 

[Deleted member 158256]

Yes it helps a lot, it's sort of simplified quite a few things mentally for me.

"... This can only be done across companies if you form a proper group with a parent company."


This sounds like the Time Warner example I mentioned above, is that correct ?

Well I am not actually that familiar with the Time Warner corporate structure but most likely it is a group!

I just mean that if you own three companies personally you cannot offset the profits of one against the losses of another. However, if you form a parent company that you own, and then it owns three trading subsidiaries, losses can then be shared among the various member companies in the group.

 

[Deleted member 158308]

That's exactly what I was trying to find out!

Then, for example, do you register the parent company with Companies House (for example Time Warner), and then on any paperwork/invoicing for one of the subsidiaries, write something like:

"DC Comics is a subsidiary of Time Warner" ?

 

[Deleted member 158256]

You would need to register every company in the group with Companies House, meaning that each company needs to file its own annual return, accounts, company tax return etc.

You can put on the stationary that it is a subsidiary if you like, but I don't think it is a legal requirement. However, why don't you think about having several trading names under a single legal entity? You could then have various stationery/logos but would include the words "abc is a trading name of XYZ ltd, registered in Scotland SC123456" on stationery and invoices etc.

 

[Deleted member 158308]

From my research it seems, that if I go this root (trading names), it's highly advised to register the trading names with Companies House too, but as dormant companies, so that no other companies can register under those names, and thus cause me legal headaches.

Do you agree ?

 

[Deleted member 158256]

Even if you form the companies someone else could still pinch your name, they just couldn't form a company. You would really need to take legal advice on how best to protect trading names. Remember also that people can form companies with almost identical names to yours so you could be there forever trying to cover every eventuality. And every company you form has a compliance burden......

 

[Deleted member 158308]

To be honest, I'm more worried about somebody setting up a ltd with my trading name, and then trying to sue me, or get my trading name terminated.

 

[businessfunding]

There are various ways of protecting your trading name.

Out of interest, is this a project or a business plan?

You need to be aware of the time dilution when running unrelated businesses; as a rule they say that one business takes 100% of your effort, 2 take 45% each, 3 take 25% each etc.

Keep it simple...

 

[Deleted member 158308]

Hi KickstartBTM,

It's research for my business plan.

For the first three months (after launch), I'll be putting 90% effort into my first business, and my partner will put in as much time as she can (at least 10% of her time). After three months, I'll see where I stand financially. Hopefully, my partner will take over running the business (90%), and then I'll launch business two.

Nothing's written in stone, it's just that I don't think it's wise (for me personally) to rely on just one business for income (long term). Of course, it would be setting myself up for failure if I didn't put 100% into my business until I felt my partner was ready to take over the daily running.

 

[Philip Hoyle]

I think you should give some thought to using a group structure from day one.

I.e. you hold 100% of shares in Holding Company Limited, which in turn owns 100% of the shares in Subsidiary 1 Limited. You can keep Holding Company Limited very simple, i.e. no assets, no liabilities - basically dormant, but just receiving dividends paid up from subsidiary and paying dividends out to you. That way, holding company limited will have minimal costs (i.e. simple accounts, simple corporation tax return, no need for VAT registration, no PAYE scheme, no need for insurances, maybe not even need for a bank account).

When you want to open the second business, form subsidiary 2 limited, again 100% owned by holding company limited. Then for third business later on etc.

If you never get around to starting the 2nd and 3rd businesses, then your existing holding company/subsidiary company group isn't too burdensome.

The real benefits of a group (even a simple one like this), is when you come to sell the business(es). Your holding company could sell the subsidiary company shares - you can happily keep the money in the holding company without facing the tax charge on taking the money out of the company (i.e. income tax on dividends or CGT on capital distribution). The holding company could then invest in another business venture, and so on.

The only real downside is the cost of the holding company, but as I say, it needn't cost much if you keep it virtually dormant other than holding the shares and the dividends passing through it.