The answer to this question depends. About what your existing company is, what your plans are for your new subsidiary, and how quickly you think ideas will come out of the ground.
In short, there is no definitive right or wrong approach, but a series of trade-offs to navigate when it comes to the best route for your business.
That said, there are certainly factors that can help you decide which approach is right for you.
starting a new company
Starting a new company based on your new idea can be a sound decision. This makes it much easier to keep new projects away from current activities. Debt segregation also ensures that if the new company has financial problems, the existing business will not be affected and will have to bear them. The advantage of starting a business as a company rather than as a subsidiary is that having your own company increases your credibility. It’s much easier to raise a lot of money for your business or sell part of your business if you’re your own company.
Depending on the structural size of your company, you may also benefit from entrepreneurial relief if you sell your company. This brings us back to the question, what is the ultimate purpose of this business? If you want to grow what you sell, another company might be the right way to go.
>See: Company Name Registration – Small Business Guide
Disadvantages of starting a new company
The main drawbacks of starting a new company are cost and complexity. The cost factor is straightforward, more companies means additional running costs, additional accounting costs, additional business administration costs, and much more complexity in terms of both day-to-day execution and annual revenue. .
Tax and legal implications
You as the owner are the link between the two, but there are barriers that can make cash flow and the movement of assets between companies problematic. Intellectual property is a good example. Taxes arise when IP transferred between companies is deemed to have monetary value. While this is not necessarily an issue, if the new idea’s IP is held by an existing company, it may be worth considering the legal and tax implications when determining the timeline for forming a new company. there is.
>See: 6 Best Small Business Ideas for 2023
What is a subsidiary?
A subsidiary is a company owned or controlled by a holding company or parent company.
In the UK, the parent company owns a majority stake in the subsidiary. The company owns more than 50% of the subsidiary’s shares and has a majority of voting rights. A subsidiary can be formed when one company acquires another company or when it is formed by a parent or holding company. A subsidiary is a separate legal entity from its parent company for tax, regulatory, and liability purposes. Subsidiaries are therefore exposed to most of the risks of being sued and are separate legal entities from the parent company.
Advantages of Subsidiaries
First and foremost, the parent company’s liability is limited and the parent company is not responsible for any costs incurred, such as attorney fees or monetary compensation. Although the parent company still controls the majority of the subsidiary’s businesses, it is not responsible for the loss of the business, which provides the parent company with a safety net and allows them to effectively contain and manage losses and other issues.
New company vs Subsidiary
It is important to determine the final game to settle if and when setting up a subsidiary is the right route for you and your company.
The advantage of keeping new ideas in the current business is that they provide a low-risk test bed to see if the idea works.
You can work on a prototype and see if your idea has an MVP before investing time and effort into starting a new company. It all depends on your vision for the project, whether it is a long-term complementary product or additional service to an existing business, and whether you plan to sell or invest in it. Creating a brand can be the most cost-effective way.
Establishment of subsidiary
The most common form of company for a UK subsidiary is a private limited liability company (ltd), which requires going through the standard UK company registration process and applying for incorporation with the Companies House. I have.
Incorporation is the process of forming a new or existing business as a company. A company formation agent, lawyer, accountant, or chartered secretary can perform the process for a fee. Alternatively, a limited company can be registered online using the company’s home web incorporation service.
Substantial documents are required for shareholders and directors, and once these documents are submitted, they are examined by the Companies House and a decision is made to establish a subsidiary.
A company must have at least one nominated director and a domestic registered office address for its subsidiaries. This means that if you are looking to set up a subsidiary in the UK but your parent or holding company is registered abroad, you will need a valid office address in the UK for your subsidiary.
All UK limited companies are required to prepare and file annual accounts. An annual independent audit is also required if the company exceeds a certain size, i.e. turnover exceeds £10.2m, balance sheet exceeds £5.1m or average number of employees exceeds 50.
The directors are personally responsible for filing the annual accounts and the company’s annual report with the Registrar of Companies. Violations will be fined.
When a new company is registered, Companys House passes the details to HM Revenue & Customs (HMRC). You will also need a company. contact Local HMRC office within 3 months of establishment.
References
A complete checklist to start your business the easy way