Q: We already have an existing business, but have a new idea for an offshoot of the company. What are the advantages and disadvantages of setting up an a new company or as a subsidiary of the existing company?
Nov 12 2005
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Answered by: Philip Wilkinson Ask a question
Setting up a new company based on your new idea is a sound decision. This makes it a lot easier to keep the new activities at arms length from you current activity. It also separates the liabilities so that if your current company has any financial issues your existing business will not be impacted by them and forced to carry them.
Setting up a company has both advantages and disadvantages, as you would have discovered with your first business, however the advantages tend to increase as your business grows. To summarise, the advantages of starting a business as a company are that there is more credibility associated with having your own company, and of course your liability is limited to the amount you agree to invest in the company when buying shares. It is far easier to raise large sums of money for the business, or sell part of the business if it is a company and there are tax advantages for those earning a high salary, by keeping money in the business or making pension payments.
However the disadvantages of setting up a business as a company are associated with greater costs and obligations than if you set up the business differently, say through a partnership. On the administrative side, the annual accounts are much more complicated, and for companies earning more than £5.6 million annually, an independent audit is compulsory. You will also have to pay employer’s as well as employee’s National Insurance contributions on salaries. For more information on companies, you can contact Companies House (www.companieshouse.gov.uk or phone 0870 333 3636) or for more information on the different options available to you when setting up your business go to www.businesslink4london.com.
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