Similarly, if the business involves the exploitation of IP across a range of markets or products, an IP holding company can be used which then grants licences of the IP (restricted as necessary to the relevant product of market) to the group companies. If, for example, the business occupies a number of sites or properties, a group company can be formed to hold all the property assets (and to lease or licence the properties as required to the other relevant group members. Centralised functions/assetsĪnother use of group structures is to provide a central holding point for certain functions or assets. The use of a separate subsidiary company to carry out different activities or hold certain assets (such as intellectual property) can also help from an administrative or regulatory perspective.Ĭertain regulatory authorisations can, for example, be extended to cover other group members (and in many cases the process for doing so is either automatic or truncated to reflect that there is common control and the group from an economic perspective effectively forms one consolidated whole).
In summary, forming a group and moving assets such as property and IP out of the trading company into a new holding company (or separate asset holding company in the group) can help to protect or ringfence those assets going forward but requires careful planning and advice. Whilst assets that tend to appreciate in value, such as property and IP, can generally be transferred to another group company at their book value rather than market value, if they are not transferred at market value and the transferring company runs into financial difficulties the transfer is likely to be reviewed and an application could potentially be made to set it aside by the administrator or liquidator (or other affected party such as creditors).Ī sale of the assets (at market value) and leaseback to the trading company may be an alternative option that would help to protect against such insolvency risks. Whenever moving assets around a group, as opposed to acquiring new assets where the assets can be acquired directly into the relevant holding company, care is required to ensure that creditors are not being prejudiced.
However, even in those circumstances, the risks and liabilities are nevertheless generally restricted and quantifiable. That is not to say that the use of a group structure can always ringfence all commercial risks and liabilities as, from a practical perspective, this may not be possible.įor example, lenders and suppliers may require the parent company to guarantee or underwrite the subsidiary’s liabilities. A group structure can therefore also help to protect against reputational and commercial risk. A divisional structure cannot provide such protection.Īs well as ringfencing financial liabilities, the use of a separate group company can also assist diversification and allow the new venture to build its own brand or reputation (albeit with such support as may required from the existing business). If, for example, you want to expand into a new product or market, using a subsidiary can ensure that the assets of the existing business are safeguarded and are protected from any liabilities that may arise in relation to the new venture. Ringfencing assets and liabilitiesĪ subsidiary company can be used to ringfence assets or liabilities, each company within the group having limited liability. There can be a range of potential commercial, regulatory, legal and tax benefits in forming a group but perhaps the most common rationale for doing so is the management or mitigation of risk. So why form a group as opposed to simply creating a division or setting up a separate entity? In that case, the companies are associated (sometimes referred to as 'sister companies'), being under the common control of an individual or group of individuals, but they do not form a group.Īnother alternative is to organise the business into divisions within a single company. Group structures can themselves take a variety of forms, from a horizontal group structure, vertical group structure to various forms of hybrid structures (examples of which are illustrated below).Īn alternative is to form a separate standalone company or companies that are owned by the same (non-corporate) shareholder or group of (non-corporate) shareholders. All companies in the group are therefore under the ultimate ownership and control of the parent company. What is a group structure?Ī group structure is created when one or more other companies that are owned (directly or indirectly) by a single parent company. Owner managed businesses come in a variety of forms ranging from sole traders and partnerships to large multi-national corporations and, as ever, there is no one size fits all approach.