RadcliffesLeBrasseur advises on every type of business start-up in the UK and we can help clients to select the most suitable structure - whether the client is a new business or an existing overseas business wanting to establish a presence in the UK.
Taxation is often the main factor which determines the choice of business vehicle. Different tax regimes apply to UK companies and partnerships, and the UK branches and subsidiaries of foreign companies and we can advise on the tax treatment of each structure. We can also advise on any competition/antitrust, data protection, immigration and employment issues arising on the setting up or acquisition of a UK business.
The alternative methods of setting up business in the UK include:
- agency or distribution
- joint ventures/partnerships
- mergers and acquisitions
- a branch office
- a new company or subsidiary
Agency or distribution
Appointing a UK agent or distributor is often the first step for an overseas company wishing to do business in the UK or for a UK company wanting to reach new regional markets. For an overseas company, an agency arrangement is the minimum requirement to satisfy UK customs formalities. The basic difference between agency and distribution is that an agent normally finds customers for the manufacturer, whereas the distributor purchases the product and then enters into contracts with the customers itself.
An agency arrangement may be preferable to a distributorship - for example, where the supplier wants to retain greater control over the terms of sale of products, or to restrict the agent's freedom to choose the customers, or where close control over the marketing of the products is essential to preserve the supplier's brand image. In addition, the commission paid to an agent is typically lower than the margin charged by a distributor on the sale of the products.
Agency can have disadvantages, however. If the Commercial Agents (Council Directive) Regulations 1993 apply, the agent may be entitled to compensation on termination of the agency, even if it breached the agency contract. Tax may also be important, as a company may often be regarded as trading in a territory if it has an agent there. Neither of these issues would arise on a distributorship.
Joint Venture/Partnership
A company (whether based in the UK or overseas) wishing to start a new UK business may want to do so in collaboration with other parties - for example, where it has the necessary funding and resources but lacks the relevant management experience or has no contacts in the local market.
The joint venture will normally be structured either as a new UK company (in which the parties take shares) or a partnership (with each joint venturer working in partnership with the others). The use of a UK company will normally help to limit the liability of each joint venturer for the debts and obligations of the joint venture but there may be an element of double taxation - first, on the profits of the joint venture vehicle and, second, on the dividends paid to the joint venture shareholders. The partnership structure may have tax advantages, and less onerous duties to publish details of the partners and the finances of the partnership, but there may be an added exposure to the liabilities of the joint venture unless limited partnership or limited liability partnership structures can be used.
Mergers and acquisitions
Another alternative would be to acquire an existing company or business. In most cases this will be quicker, as the operation will already be up and running. There will be a much greater up-front cost, as the price for the business will reflect the seller's goodwill, but acquisition could still save costs in the long run, as it might be more expensive for a new business to develop the infrastructure and customer networks from a standing start.
RadcliffesLeBrasseur has considerable experience of mergers and acquisitions. For example, we recently handled the £200m+ acquisition of a property company in London, one of the largest UK transactions of the year.
Branch office
An overseas company seeking a presence in the UK or a UK company wishing to enter a new regional market may decide to set up a branch office. If so, it can structure and manage the branch as it thinks fit, subject (in the case of the overseas company) to legal requirements on the employment of foreign nationals and the filing and reporting requirements imposed by the Companies Act 1985.
Alternatively, an overseas company could set up a non-UK subsidiary which would then establish a UK branch. This would reduce the risk of the Inland Revenue seeking to tax the profits of both the branch and the overseas company itself.
Subsidiary
A further alternative is to set up a new company in the UK. A UK company is a separate legal entity, with its own rights and liabilities, and the shareholders are not generally liable for the company's debts. By contrast, for most purposes, a branch and its parent are the same legal entity, and the liabilities of the branch are those of the parent. Using a subsidiary could therefore help to limit the parent's UK exposure.
As regards tax, when an overseas company sets up a UK subsidiary, the objective is to ensure that the profits of the parent are shielded from UK taxation. Companies are UK tax resident if they are incorporated here or if their central management and control is exercised in the UK, so care must be taken to ensure that the overseas company does not become UK resident. Transfer pricing transactions between an overseas parent and a UK subsidiary may also be scrutinised by the Inland Revenue.
The creation of business in the UK will invariably require the recruitment or transfer of employees to run the business once it is established. Our employment group is able to provide comprehensive and practical advice to ensure that the business complies with the ever increasing UK and European employment legislation. We also provide immigration services where foreign businesses wish to transfer existing employees into its new UK territory.