Joint ventures, subsidiaries,consortia and loss relief
November 23rd, 2010
In these difficult times, joining forces with another company that offers ancilliary services may be a good idea as you can both get access a wider pool of customers and sales personnel.
This can be done through a separate trading company which is jointly held or through a consortium, where at least 75% of the share capital is owned by the members of the consortium, each member owning at least 5%. Any tax losses arising (and these can be high on start-up) can be passed back to the owners and this is known as consortium relief (CR). There are certain rules which need to be looked at on an individual basis.
The rules were that the losses could be allocated on a basis agreed by the group, regardless of the shareholdings. Now, new rules will restrict CR in proportion to direct voting powers, not shareholdings or prior agreement amongst the group.
It is possible to agree a balancing payment with group members to compensate a company which loses out significantly under these new arrangements but make sure a clear formula is agreed in advance for this.
The content of this article is for general information only. It should not be relied on and action which could affect your business or personal circumstances should not be taken without appropriate professional advice.