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September 17, 2020

Pure & Simple: Streamlining Company Groups

In our previous article Protect & Thrive - Asset Protection & Holding Companies (30 March 2020) we looked at the benefits of inserting a 100% parent company above a trading subsidiary. But what happens when a group decides to simplify and rationalise its structure instead? This article focuses on situations where there are a number of holding companies above one or more trading companies and looks at the reasons why a group may choose to streamline its structure and the different options available.

Benefits of a Simpler Structure

A group structure may have arisen as a result of one or more management buy-outs and/or capital reduction demergers, rather than a direct conscious choice by the directors. Each company is required to submit annual returns and confirmation statements each year (even if they are dormant), and active companies are also required to submit Company Tax Returns. With this in mind, having more companies than required in a structure can increase ongoing compliance obligation costs.

What are my Options?

From our experience, there are two main options for streamlining a group structure consisting of a number of holdings companies, such as the structure below:

The two options we typically suggest are a) Strike-Off Hold-Co; and b) Hive-Up & Strike-Off.  We have considered both of these options in further detail below.

Option A - Strike-Off HoldCo

The first option is for HoldCo to distribute its shares in TradeCo to TopCo, before being subsequently struck-off. Provided that the transactions are carried out correctly, this can typically be done in a tax-neutral manner. Following the strike-off, TradeCo will be the 100% subsidiary of TopCo and HoldCo will be removed from the structure. This may be the more appropriate option where the directors would like to keep a holding company in place, for example for asset protection purposes or to group a number of subsidiary trading companies together.

Option B - Hive-Up & Strike-Off

The second option is for the assets and the trade in TradeCo to be "hived-up" to HoldCo or TopCo, and for the companies below the new trading company to be stricken off. As with Option A above, 0n the basis that the relevant transactions are executed correctly this simplified structure can also typically be achieved in a tax-neutral manner.

It is important to note that whilst this route can result in the shareholders owning shares in the trading group directly (i.e. as opposed to through a holding company), the transfer of the business to another company may cause complications with clients/customers and suppliers.

Want to Find Out More?

We have experience and expertise with advising on reorganisations and have assisted many clients with inserting holding companies, grouping companies together, and rationalising group structures. If you have any queries or would like to find out more about how we can help you and your business, please contact a member of our team.

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Protect & Thrive - Asset Protection & Holding Companies

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