Ringfencing Projects

[ECSWalker]

I noticed today that a company we do project work for sets up a new LTD entity every time they start a new sizable project. I'm assuming they're protecting their main company in case that particular project goes the way of the wind.

The idea sounds intriguing, and on the face of it sounds like a good idea. What would happen in the event of the newly minted company going bump for one reason or another, and would it jeopardize or put the other companies at risk (due to association) due to the obvious reason they're doing it?

 

[Mark T Jones]

I noticed today that a company we do project work for sets up a new LTD entity every time they start a new sizable project. I'm assuming they're protecting their main company in case that particular project goes the way of the wind.

The idea sounds intriguing, and on the face of it sounds like a good idea. What would happen in the event of the newly minted company going bump for one reason or another, and would it jeopardize or put the other companies at risk (due to association) due to the obvious reason they're doing it?

Its partly a matter of scale and intent

I know of businesses who seem to set up a newco the moment they have an idea - it's heavy-handed and created a lot of problems where credit us concerned.

The odd start up/dissolve doesn't have huge impact, one a month just looks shabby

 

[UKSBD]

I noticed today that a company we do project work for sets up a new LTD entity every time they start a new sizable project. I'm assuming they're protecting their main company in case that particular project goes the way of the wind.

The idea sounds intriguing, and on the face of it sounds like a good idea. What would happen in the event of the newly minted company going bump for one reason or another, and would it jeopardize or put the other companies at risk (due to association) due to the obvious reason they're doing it?

Quite common in some industries, guy I know in TV production has 50+ companies set up in last 10 years or so, basically a new company for each new production but under the same main company.

 

[Excel-Expert]

Didn't Trump rely heavily on this mechanism to screw over suppliers? A big project would get built then the controlling company would fold and the building would turn up as an asset in another Trump company. Meanwhile, the suppliers of the original company were left trying to get money out of the defunct company

 

[Lisa Thomas]

It can be very sensible - if the project fails they still have a successful business to fall back on.

 

[Financial-Modeller]

For construction / development projects there can be tax advantages to owning the site and project within an SPV.

 

[MBE2017]

For construction / development projects there can be tax advantages to owning the site and project within an SPV.

Correct.

Also useful if you are working with JV’s, Partnerships etc, it also helps to have a particular vehicle sometimes to gain mortgages or financing. Finance companies like a separate company for rentals, Lettings, leases, refurbs, new build etc.

It could be a combination of part or all.

 

[ECSWalker]

We’re starting to do more and more refurb contracts for housing associations so could potentially use this for project funding, too.
Thanks for all of the responses everyone!!

 

[DazRave]

There's a kitchen company I know who set up a ltd for each showroom they open. I find it quite fascinating really as it's a bit like franchising only you also technically own all the franchises.