New Business from Existing
Discussion
Evening.. my idea is that I want to setup a new business using the funds in my existing Ltd company... the basic essence of my question is do i actually need to setup a new company at all, or can my existing ltd. company just "branch out into a new area" so i.e. I have an IT consultancy and wish to start a small car rental business.
Obviously I need to make purchases, pay bills and hopefully take income. Can i do this under the single company essentially to save on initial administration and accounts fees etc..
If it does't work, i can back out easily by selling the assets and have nothing but the experience to put behind me...
If it works, I may have a different challenge (hopefully in a few years expanding one business whilst maintaining the other, but am willing to deal with that to simplify startup phase.
Cheers (and yep will be having a chat with my accountant as well - just wanted to gauge your views)
Craig
Obviously I need to make purchases, pay bills and hopefully take income. Can i do this under the single company essentially to save on initial administration and accounts fees etc..
If it does't work, i can back out easily by selling the assets and have nothing but the experience to put behind me...
If it works, I may have a different challenge (hopefully in a few years expanding one business whilst maintaining the other, but am willing to deal with that to simplify startup phase.
Cheers (and yep will be having a chat with my accountant as well - just wanted to gauge your views)
Craig
First - a bit of company law.
When was your company first set up?
In other words, was it set up under the terms of the 1985 or the 2006 Companies Act.
If the former, it will have an "Objects Clause" in its Memorandum and Articles of Association. The Objects Clause sets out what the company can or can't do. So, before you branch out into any new trading activity, check -
a) if an Objects Clause exists
and
b) if it does, check what it says
If set up under the 2006 Act, then there will be no Objects Clause so this will not be an issue.
Now a bit of accounting.
Running a car rental operation and an IT operation are quite different trades. On that basis, if operated through the same company, you might be required to split all the trading figures in the accounts to show the two activities separately. This makes the accounts complicated.
Now a bit of tax.
Because of the differing trading activities, HMRC will want to ensure that they know the profitability of the two separate trades. The offsetting of losses one against the other may be restricted if the trading activities are disparate.
The alternative is to set up a separate trading entity (it could be another limited company - but it could also be a partnership or a sole tradership) and run the second business through that. This would keep the two activities separate and would avoid any of the points mentioned above.
However, running two trades separately, especially two limited companies, will more than double the admin hassle.
You do need to talk to your accountant as he/she will know the full extent of the two trading activities and the impact it will have on how the finances are recorded, disclosed and returned for Corporation Tax/Income Tax purposes.
And I haven't mentioned VAT at all
When was your company first set up?
In other words, was it set up under the terms of the 1985 or the 2006 Companies Act.
If the former, it will have an "Objects Clause" in its Memorandum and Articles of Association. The Objects Clause sets out what the company can or can't do. So, before you branch out into any new trading activity, check -
a) if an Objects Clause exists
and
b) if it does, check what it says
If set up under the 2006 Act, then there will be no Objects Clause so this will not be an issue.
Now a bit of accounting.
Running a car rental operation and an IT operation are quite different trades. On that basis, if operated through the same company, you might be required to split all the trading figures in the accounts to show the two activities separately. This makes the accounts complicated.
Now a bit of tax.
Because of the differing trading activities, HMRC will want to ensure that they know the profitability of the two separate trades. The offsetting of losses one against the other may be restricted if the trading activities are disparate.
The alternative is to set up a separate trading entity (it could be another limited company - but it could also be a partnership or a sole tradership) and run the second business through that. This would keep the two activities separate and would avoid any of the points mentioned above.
However, running two trades separately, especially two limited companies, will more than double the admin hassle.
You do need to talk to your accountant as he/she will know the full extent of the two trading activities and the impact it will have on how the finances are recorded, disclosed and returned for Corporation Tax/Income Tax purposes.
And I haven't mentioned VAT at all
Thanks for that, much more comprehensive than I was expecting so thank you....
So in essence there is long term cost to my short term 'thought' of making it simple... I will give it much more thought and thanks for the detail regarding company setup, I will check that today anyway!!!
For a 2 company setup, am I right to assume that my profitable company can loan the new company funds to setup? It may be a long while before funds can be repaid...
So in essence there is long term cost to my short term 'thought' of making it simple... I will give it much more thought and thanks for the detail regarding company setup, I will check that today anyway!!!
For a 2 company setup, am I right to assume that my profitable company can loan the new company funds to setup? It may be a long while before funds can be repaid...
Yes - there are no real restrictions on one business lending to another.
However, as the businesses are connected (they share common directors/shareholders/proprietors etc), extensive notes would need to be disclosed in the formal company accounts being prepared for both or either business.
Also, when a small business person starts running two separate activities - either in one trading entity or split between two entities - there is a real possibility of the original successful business suffering as it might end up being used as a cash cow to support the new venture. The new venture may also take the owner's attention away from the core activity - which could cause the original business to suffer.
It is a dangerous time in a business history so care need to be exercised.
However, as the businesses are connected (they share common directors/shareholders/proprietors etc), extensive notes would need to be disclosed in the formal company accounts being prepared for both or either business.
Also, when a small business person starts running two separate activities - either in one trading entity or split between two entities - there is a real possibility of the original successful business suffering as it might end up being used as a cash cow to support the new venture. The new venture may also take the owner's attention away from the core activity - which could cause the original business to suffer.
It is a dangerous time in a business history so care need to be exercised.
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