Private company formation
- Helen Curtis
- Updated: Fri, 27th Jan 2017
We specialise in the formation and management of private companies and UK subsidiaries of foreign parents. We deliver solutions designed to enhance the trade and investment opportunities. We work across a range of sectors.
Our specialist services for private companies includes but is not limited to:
Pitfalls and opportunities with business structures on and after UK formation
For private companies, shares lie at the heart of the corporate structure. We consider:
- Share issues;
- Dilutions of shareholdings;
- Increases or reductions of share capital;
- Varying or creating different share classes; and
- Dividend rights.
Nominee shareholders in private companies on or after UK formation
As part of our UK company formation service we do advise on nominee shareholders. We ensure you comply with transparency rules under the Small Business, Enterprise and Employment Act 2015. In a nutshell, there has to be a register of shareholders with “sufficient control” of the company. Sufficient control can be where:
- A registered legal owner of shares holds the shares on trust for the true beneficial owner, i.e. a legal owner holding shares on trust for an overseas parent, the parent being the beneficiary; and
- Such beneficial owner holds a level of voting rights, with the voting rights extended to the right to remove or appoint a director, a right to acquire shares in the company, or a right to manage the company’s affairs.
Regulatory requirements for nominee shareholders
The above are examples only, care must be taken and all the facts considered before, during, and after UK company formation. The Act applies to all corporate vehicles in the UK, and such corporates or UK subsidiaries will have to prepare a public register providing information on the beneficial owner, i.e. the nominee shareholder.
Fines and penalties for UK company formations
Failing to adhere to the regulatory landscape for nominee shareholdings can leave your business exposed to fines and penalties. Our job is to keep up-to-date with the regulatory requirements and advise you accordingly so as to ensure that your UK company can trade and focus on growth – this is where we add value.
Wider share ownership
Private companies who thrive usually distribute equity to key employees. We have seen what works in other businesses. We’ve implemented:
Raising business funding on or after UK formation
Many private companies grow through raising finance. There are a variety of ways in which business funding is secured. In all cases, potential investors will scrutinise your corporate structure.
Our work for private companies includes drafting investment agreements. The benefit of our approach is that we will use our tax expertise to create structures for investment likely to generate tax benefits for the investors when they realise their investment. We address investors’ concerns in advance, and ensure the structure utilises appropriate tax breaks. We often obtain SEIS and EIS approvals from HMRC, which can provide investors with generous tax savings.
Where bank finance is hard to obtain, funding can often be via a joint venture arrangement. We help get a joint venture off the ground using our experience learnt on other deals.
Ring fencing assets is a growing area forming part of setting up the investment structure which we do advise upon. Another important area we cover off is realisation of the investment and how this will be achieved.
Where it can go wrong
Experience tells us that structuring investments via share issues is an area where matters can easily go wrong. Pitfalls in the structure people fall into frequently include:
- Failing to consider the fully diluted share capital position post investment;
- Failing to pitch the investment round at the best level;
- Failing to get the tax structuring correct. Often this only comes to light on sale of the shares when it is often too late to rectify mistakes.
It is also often the case that shareholders fail to agree exit terms in the form of a shareholders’ agreement or company articles. We take the time to consider exits at the start. That can prevent timely and costly legal action at a later date.
UK formation of subsidiaries for foreign parent companies
We establish UK subsidiary companies for foreign parent companies seeking to trade in the UK. We solve all of the issues arising around:
- How to structure the UK trading operation;
- How to extract profits out of the UK to the foreign parent;
- How to engage UK staff;
- How to trade in the UK effectively; and
- The purchase and sale of UK operations.
Companies in the UK are now required to file a persons with significant control (PSC) register. This can be an issue for foreign parents, but one that has exceptions. We look at the exceptions.
There is a risk that due to the foreign parent’s operations in the UK, the foreign parent will be assessed to tax here. That again is a grey area and one that we can advise on.
Structure of the UK trading operation
There are many ways to structure your UK investment and we discuss what will work for you. UK law permits different classes of shares. Each class offers shareholders different rights and liabilities, for example different rights to voting and dividends.
Extraction of profits out of the UK
The UK offers tax legislation designed to enable profits after tax to be sent to foreign parent companies without further tax such as dividend tax. The rate of corporation tax in the UK is very low. In addition there are a number of very attractive tax reliefs which can be claimed against corporation tax for companies involved in intellectual property, design and development. The reliefs against corporation tax include:
- Research and development tax relief; and
- Relief for income arising from patents
Engaging UK staff
Compared to the rest of Europe, the UK has clear and relatively cheap methods of terminating employment contracts for employees and directors based in the UK. The UK’s Employment Tribunals are designed to be easily accessible compared with other forms of litigation. Only very large businesses are required to run work councils.
- We’ll tell you how best to manage your UK workforce to take advantage of UK labour laws. We often draft employment documentation for overseas parent companies.
- If your UK employees are under-performing or no longer needed, we can quickly resolve these problems.
- Our director’s service agreements ensure directors remain motivated. If things aren’t working, then dismissing a director can be easily done without excessive costs.
Trading in the UK
Agents and distributors have rights and legal protections. However, your obligations depend upon the precise circumstances.
- We ensure you do not create unnecessarily prohibitive contractual obligations in the UK.
- We find solutions if you need to terminate agreements made in the UK that are not working for you.
Protection of intellectual property used by the UK subsidiary
We take care of intellectual property rights used under the UK company formation. We:
- Register intellectual property in the UK, and elsewhere in the world.
- Ensure there are appropriate patent approvals and patent licences in place, thus granting permission to the UK subsidiary to trade without risk of infringement. We often incorporate holding companies or subsidiaries to own intellectual property assets and then licence the use of the intellectual property to other group companies.
Commercial contracts adapted for use by the UK subsidiary
We deal with the design and drafting of all types of commercial contracts steering you clear of traps. We can work from the precedents used in the foreign company and adapt them to be UK compliant. We act as in-house counsel for our clients providing them with the expertise needed.
Buying and selling private companies
Our core specialist area revolves around the buying and selling of private companies. Our team are skilled in this area and we are set up to deliver work on time and within budget in circumstances which can be challenging. We work with shareholders selling out, investors realising value and businesses acquiring new businesses covering all stages from:
- Preparing for the sale and review of likely material to be disclosed under due diligence;
- Guidance on sale valuations to be placed on the transaction;
- Protection under a non-disclosure agreement;
- Review and negotiation of the sale and purchase agreement;
- Drafting of disclosure letters for the sellers to limit claims on warranties;
- Dealing with TUPE and other employment issues arising under the transaction;
- Structuring of the transaction for tax efficiency for the sellers of UK shares in private companies.
We handle transactions of a variety of sizes and have the flexibility to price accordingly for the complexity of the instruction.
Track record in providing solutions for private companies and UK company formation
Our recent work arising around UK company formation includes:
- Setting up a UK subsidiary for a US parent to distribute goods and services in the UK.
- Documenting the trading activities of a pharmaceutical trading company to enable the company to benefit from research and development relief.
- Restructuring a group of manufacturing companies by the formation of a holding company in the UK registered to own all intellectual property rights. We then prepared a licence back to various group companies, simplifying revenue streams.
- Adapting an Australian company’s handbook to harmonise employment policies and procedures for its UK workforce employed in the UK subsidiary.
- Drafting a bespoke distribution agreement for a Spanish company selling food produce in the UK.
When you form a UK company, the first step is to consider the corporate structure, what your competitors are doing, and how to maximise revenue. We can advise you on these matters to ensure that your time is spent developing a business plan targeting your desired market. Our range of core business areas enables us to consider business issues from a variety of individual angles, i.e. the founder, the investor, the director, and the employee.