We are often asked can my new Offshore company own more than one business?
The short answer is one Company can own many businesses but what the question really should be is this: Is it advisable to have one Company owning multiple businesses?
Let’s look at the pros and cons….
Let’s say you’re the budding young entrepreneur. And that when starting out you’ve got 3 solid business ideas but you’re unsure of which one is likely to take off… after all business is risky and you can never be sure, right?
Hence, understandably, you’re not going to want to go to the cost of setting up 3 separate Companies given its possible that one or more of the new businesses might never take flight.
But what if all 3 businesses do take off and they are all owned/operated by the one/same Company. What’s the disadvantage of that?
In short, the risk with that kind of structure is that if all 3 businesses are owned/operated by the one/same Company – and any one business fails – assets owned by and/or cash in bank accounts held by the other businesses are at risk of attack from the failed business’s creditors. Worst case scenario? The badly performed business/es could owe so much that it/they end up sending the whole Company broke killing off the profitable business/es in the process.
The other advantage of having businesses owned by separate Companies is that when it comes time to sell it’s going to make the marketing and sale process a lot easier (eg the buyer, in effect, only has to do due diligence on one business not 3) and maybe less expensive, eg you could sell the shares in the Company rather than the assets of the Company and potentially avoid prohibitive stamp duty being imposed on the sale proceeds/contract price. (Presumably this would make your business a more attractive proposition to would be buyers).
Yes you could set up a 2nd or 3rd Company later and at that time transfer ownership of the 2nd business to the 2nd Company and the 3rd business to the 3rd Company as the case may be. However, in that scenario:
(a) A Share Sale/Purchase agreement should be entered into on reasonable/normal commercial terms and signed by the existing Company and the new Company (eg the new owner ie the 2nd/3rd Company will need to be seen to have legally bought the business)
(b) The price paid for the business by the new Company will need to be seen to be fair market value
(c) The new owner will need to be seen to have paid for the business before it is registered as the new owner thereof
If the above boxes are not all ticked the transfer could be set aside later as a sham transaction leaving tax/legal etc liability in the hands of the former owner (ie the first Company).
In summary, for the reasons detailed above, it is always preferable where practicable to have separate businesses owned by separate Companies, from the outset.
Would you like to know more? Then please Contact Us:
Disclaimer: OCO Ltd are not Tax advisers or Legal Advisers. You should seek local tax, legal and financial advice before committing to set up an entity such as that described above.