Most business owners know the differences between being a sole trader, partnership and a limited company and the benefits of having limited liability.
The problem I see with businesses is they generally just put everything to do with that business in one limited company – so I will break this down into component parts –
CUSTOMERS
So the LTD company generates sales and all the revenue from those sales go into the company.
INTELLECTUAL PROPERTY
So any trade marks, brands, logos, know how, processes again all in one company.
FIXED ASSETS
So if the business trades from an office or factory or has any production machinery / equipment they all go into the LTD company.
STAFF
And the LTD company employs all the staff.
Now the problem with this structure is if you get sued by a customer or a member of staff your fixed assets and all your IP are at risk. Yes you have insurance but you can’t always rely on that.
I would structure a business using a collection of companies – so not a group – they are all independent of each other. If it were a group you don’t gain the same asset protection as I am going to outline here. So if you own 100% of your company you will set up a series of companies to house component parts and you will own 100% of each company. If you own 25% of your company and there are three other shareholders each owning 25% you set up a collection of companies all with the same shareholding.
So you have COMPANY 1 LTD this houses all your customers. So all this company does is bill your customers and collect the money. So any contract between you and the customer sits in this company.
COMPANY 2 LTD then houses all your intellectual property so your brand, logos, processes, know how etc.
COMPANY 3 LTD houses all your fixed assets so buildings, machinery, equipment etc.
COMPANY 4 would employ all the staff.
What then happens is you set up a licensing agreement between COMPANY 1 and COMPANY 2.
So basically company 2 licenses for use by company 1 all the intellectual property required to trade the business.
COMPANY 3 licenses for use (so it may be a license or a lease) all the fixed assets – so it may charge rent under a lease for company 1 to use the premises or license or lease machinery etc.
COMPANY 4 licenses its staff for use by COMPANY 1 to produce, manufacture, sell, deliver etc its products or services.
What that means is your revenue & customers , assets and employees are all separate.
This separates everything and protects your assets.
Now you can’t just move assets and customers and staff there are certain rules and laws to consider which we won’t get into here but if anyone wants specific advice on the subject reach out to me .