Company restructuring offers numerous advantages and supports a business in achieving its changing commercial, financial, and legal goals. Periodically reassessing and adjusting the corporate structure becomes necessary for businesses.
In the current economic landscape, where rising costs and interest rates impact profitability, it is crucial for companies to consider restructuring as a means to address these challenges.
Why does business structure matter?
The business structure encompasses the legal and organisational framework that governs a company's operations and management. It has a significant impact on various aspects, including decision-making authority, profit allocation, and share distribution. As a result, it is a powerful tool for business owners to shape their organisation.
When should you consider a restructure?
To maximise its effectiveness, restructuring should be seamlessly integrated into the fundamental workflows of your business. It is prudent to evaluate your business structure whenever there are significant changes in your market, business plan, or performance—both current and planned.
While many companies undergo restructuring during challenging times, it can also be advantageous for those aiming to boost profits and minimise tax obligations at any stage of their business lifecycle. Moreover, restructuring is often necessary in specific circumstances such as preparing for a sale or acquisition or protecting assets.
There are various reasons and scenarios that may prompt a business to consider restructuring.
For expert advice on restructuring and insights into the tax advantages it can offer, reach out to our team of corporate tax advisors at Tax Natives.
Types of company restructuring
The choice of business restructuring depends on the unique circumstances and objectives of each company. While each type presents its own challenges, they also offer distinct advantages. Here are the four primary types of business restructuring.
1. Demerging and splitting a group structure
When a business expands, the goals of its various sectors may no longer align, or disagreements among shareholders may arise. Additionally, there may be a need to separate a large property from the group. In such cases, operating the companies independently could be a better solution.
This can be achieved by creating subsidiaries to divide the different sectors within the business. This approach can also be advantageous when a company intends to sell a portion of its business.
2. Consolidating businesses into a group structure
Expanding businesses may find that related companies operating independently could achieve greater efficiency by working together. Streamlining and consolidating the group structure can lower operational costs by reducing the need for separate entities and administrative roles. This allows key staff to concentrate on their core business activities and enhances day-to-day operations.
3. Establishing a new holding company
By implementing this approach, the company can possess shares or assets in subsidiaries, granting the holding company the ability to manage and oversee the operations of these subsidiary entities.
4. Share reorganisation
Share reorganisation involves various actions such as capital reductions, changes in rights, or the acquisition of existing shares. It is commonly pursued to secure fresh investments, address shareholder conflicts, or facilitate smooth succession planning.
What are the benefits of restructuring your business?
Businesses may seek to restructure for a variety of reasons:
1. Business acquisitions and mergers
When acquiring or merging with a new company, restructuring the corporate structure may be required to integrate the new business effectively.
2. Improved visibility
Accurate tracking and analysis of business performance are crucial for making informed decisions. While accounting software provides departmental reporting, having separate entities for each product or department offers a more detailed view of their individual performance. This allows for better investment planning, comprehensive statement reviews, and targeted decision-making based on performance data to seize opportunities and manage risks effectively.
3. Reducing risks
Creating a subsidiary or separate company can mitigate financial risks associated with potential loss-making departments.
When it comes to property assets, such as company premises or investments, holding them in a separate entity provides protection. By separating trade and property ownership, the value of the property is shielded from potential liabilities arising from the business's operations, reducing risks and safeguarding the assets.
4. Succession planning
Succession planning in family businesses is crucial for a smooth transfer of ownership across generations. It involves careful timing and consideration of various factors, including the transfer of share rights, to ensure a seamless transition.
A key focus is on achieving the most tax-efficient method of transferring ownership, taking into account the complexities and personal nature of the task.
5. Shareholder disputes
Shareholder disputes and deadlocks can hinder business progress and impact profitability and morale.
In such situations, restructuring options like demerger or share redistribution, including buyouts, can effectively resolve disagreements and restore harmony within the company. This proactive approach helps address conflicts and pave the way for a more productive and collaborative business environment.
6. Moving assets
Transferring assets can be motivated by various factors, and if there is an existing group structure, it can typically be done in a tax-efficient way. By strategically managing asset transfers within a group, businesses can optimise their tax planning and ensure a smooth and advantageous transfer process.
7. Cost savings and increased efficiency
Consolidating companies can lower compliance and administration costs, as it streamlines tasks like preparing accounts and tax returns. Additionally, downsizing during a restructuring opens up opportunities for cost-effective outsourcing of functions like payroll and financial management.
Furthermore, restructuring can prioritise the integration of new technologies to enhance business efficiency and generate financial savings. Embracing innovative technologies is crucial for business growth and can yield substantial benefits.
8. New investment opportunities
Restructuring can enhance a business's appeal to potential investors. Limited companies often encounter limited external investment prospects, but a straightforward restructuring can unlock a multitude of new opportunities for external investment.
9. Improved employee satisfaction
Providing employees with shares in the company is a strategic approach to restructuring that offers numerous advantages. Implementing an employee share scheme promotes loyalty, enhances retention rates, and strengthens the overall business.
10. Operational flexibility
A well-designed business structure offers flexibility for growth and investment. By creating separate entities for new ventures, you can focus on specific areas and make targeted decisions. Additionally, when it comes to selling your business, having a structured setup allows you to carve out specific parts for sale instead of selling the entire company.
Company restructuring to become more tax-efficient
Business restructuring offers the opportunity for tax-efficient benefits. By reorganising the corporate structure, you can create a more tax-efficient setup, reducing your tax liability in the long run. It is crucial to seek professional advice to ensure that the restructuring maximises applicable tax reliefs.
Without careful consideration, restructuring can result in increased tax burdens, including stamp duty, SDLT, VAT, corporation tax, and potential loss of tax reliefs.
Looking for professional advice to help with restructure your business?
Are you looking to enhance the financial efficiency and flexibility of your business?
Consider the advantages of company restructuring. By reorganising your corporate structure, you can unlock tax benefits, streamline operations, and position your business for growth.
At Tax Natives, we specialise in helping businesses navigate the complexities of company restructuring while optimising their tax obligations in the UK. Our team of experts understands the intricacies of tax planning and can guide you through the process, ensuring you capitalise on available tax reliefs and minimise potential tax burdens.
With our professional advice and tailored solutions, you can strategically restructure your business to reduce tax liabilities, increase operational efficiency, and seize new growth opportunities. Don't let tax complexities hinder your business success.
Contact Tax Natives today and explore the advantages of company restructuring tailored to your unique needs.