Business owners who wish to limit the potential loss of trading and personal assets, for example, the family farm, often set up a trading company to run the business instead of a partnership or a sole trade. This is especially vital where the public liability risk could be greater, for example where the business sells food. For poultry farmers, the concern is often the potential impact of avian flu and therefore limited liability companies are popular in the poultry sector.
Conventional wisdom has been the use of one limited company which is often enough to protect the assets of the family. However, when the business retains the profits to invest in the business to further grow the business, you can soon have a substantial company where wealth is once again at risk.
A relatively simple solution to this is to use a holding company. This enables the trading company to continue as it is, but instead of individuals owning the company, it is now owned by a holding company which is in turn owned by the same individuals.
The benefit of this is that the retained earnings can be passed to the holding company tax-free via a dividend.
This business structure can also be used where the farm has diversification. For example, where the farming activities are run through a limited company and the farmers decide to open a farm shop and café. Where these enterprises bring in extra risk to the farming business, this can be run in a separate company. Where both companies are subsidiaries of the holding company, they will form one group. As a group, if one company is loss-making, this loss can be shared between the other companies in the group. However, as well as limiting the risk, it also enables different family members to take responsibility for different parts of the diversified farms, while maintaining ownership of the whole business together.
To create this structure, depending on your requirements, it could require seeking clearance from HMRC to be able to set up the structure without any capital gains tax or stamp duty. However, like your insurance policy, it provides extra peace of mind that you have done all you can to protect your business and personal assets from loss.