How to transfer assets from one group company to another

As your business grows, you may choose to restructure it with a holding company at the top and various subsidiaries below. That allows you to protect key assets in the holding company and separate the roles of the subsidiary companies. If you’re selling part of the business, you can transfer the assets you want to sell into a single company and sell them as a package.

This article explores how you can move assets from one company to another to prepare for your next stage of growth.

What is a group company structure?

Some businesses structure their operations in a group company structure. That means there is a holding company at the top, often called the parent. The holding company can be an active trading company, or – more frequently – an entity that holds assets and shares.

The subsidiary companies sit beneath the holding company. Each subsidiary company is a separate legal entity. The holding company usually owns 75% or more of the shares in the subsidiary company, allowing it to make key decisions and control the subsidiary.

The subsidiary companies are the companies in the structure that engage in active trading.

• Can I sell shares in a private limited company?
• How to transfer company shares
• What does it mean to have shares in a company?

Benefits of a group company structure

There are many benefits of a holding company for any business.

Protection from liabilities

Due to the nature of commercial trading, risks are unavoidable. Companies can be sued or mismanaged and end up facing significant financial liabilities.

If a supplier has legal action against a subsidiary, it can only sue that legal entity. Only in limited circumstances can the supplier also sue the holding company. That means assets held by the holding company are generally protected from the risks taken on by its subsidiaries.

Availability of tax-free dividends

Within the group, it’s possible to pay tax-free dividends to group entities.

Simplifies the path for expansion

The group structure also makes it easier to sell, restructure, or expand the business internationally. That’s why many growing businesses adopt a group structure.

Why transfer assets between group companies?

Once the group structure is set up, why would you transfer assets between group companies?

An intra-group asset transfer can:

• Improve your tax position overall
• Prepare your business for sale
• Prepare your business for the acquisition of another company
• Protect the assets from liabilities of the business

A common example is moving intellectual property rights into a holding company (or another entity dedicated solely to holding those assets), then licensing them back to the subsidiary that needs to use them (the operating company).

Supporting diversification or launching a new product

When you’re launching a new product or diversifying the offering of your business, you may want to create a new subsidiary specifically for that product. That way, you can help protect the rest of the business from the risks and costs of the new product.

Before you place the new subsidiary into the group structure, it can be helpful to reorganise the rest of the group so that the new subsidiary slots in conveniently. That’s why you might transfer assets within the group before you launch the new product.

Preparing for a business sale

Perhaps you’re at a stage in your business where you want to sell part of it. For example, a cereal company may choose to sell its ‘snacks’ division but continue with the cereal section.

You may need to transfer assets between subsidiaries to clarify what is included in the sale (and which parts you expressly want to retain). This gives certainty to both the buyer and the seller.

How to transfer assets between intra-group limited companies

As we mentioned earlier, there are various ways to transfer assets, and you should consult a lawyer for bespoke advice on your situation. Here, we provide a general overview of what happens in an intra-group transfer of assets.

Step 1: Instruct advisers

An analysis of the tax position usually drives the structure of a group reorganisation. Always seek early input from legal and tax advisors or accountants.

You’ll need lawyers to advise you on compliance with company law and to draft relevant agreements. Getting things wrong could expose directors to fines and even criminal liability, so it’s crucial to get reliable legal advice from the outset.

Step 2: Identify the assets to be transferred

It sounds simple, but you first need to identify the assets that you want to transfer.

Assets can include any:

• Sellable goods
• Equipment
• Vehicles
• Customer lists
• Money
• Real estate
• Intellectual property rights, and
• Rights that the business owns, such as the rights to use land, operate machinery, trade, etc.

You’ll need to consider all the assets you want to transfer.

There may also be certain liabilities that need to be transferred as part of the deal. That could be debts, mortgages, or lease obligations, to name a few.

Step 3: Obtain necessary consents and approvals

A transfer of assets will need approvals, consents, and clearances from various parties.

Shareholder approval

You’re likely to require shareholder approval. Check the articles of association and your shareholder agreements to determine whether shareholder approval is required. It may be the case that there is a carve-out for transfers between a holding company and a wholly owned subsidiary (i.e. a company in which the holding company owns 100% of the shares).

Approval from directors

Normally, an intra-group transfer can be approved by the board. If you’re a director, you must consider your fiduciary duties and your general duties to the company. When you record your approval in the board minutes, you should explain how you’ve complied with your duties in deciding to approve the transfer.

Consents from third parties

Then you need to consider the parties that may be affected by the change in ownership of the assets. Do you need consent from customers, suppliers, landlords, or lenders? This information will be contained in your various contracts and agreements with these parties.

Step 4: Draft and execute all legal transfer agreements

The main contractual document for asset transfers is the asset purchase agreement. That’s the document in which the subsidiary agrees to transfer assets to the holding company.

But you may need a range of additional documents too. Your supplier contracts or customer contracts may need to be novated with a novation agreement. That means transferring the rights and obligations under the contract from the previous party to the new one.

Intellectual property rights are transferred using an assignment, or they are licensed to the subsidiary. If the transfer includes land or property, you will also need property transfer agreements.

There can be an extensive suite of documents involved, depending on the nature and the number of assets you’re transferring. Without the documents in place, though, the ownership does not legally transfer. Once drafted and agreed, the documents must be signed by duly authorised signatories (usually the directors).

Step 5: Complete post-completion actions

Legal ownership usually transfers upon signing and dating the documents. But there are various post-completion actions to complete the deal.

Firstly, delivering the deliverables. If you’ve agreed to license software from the holding company to the subsidiary, grant the subsidiary access to it.

Your lawyers will keep you right on the other post-completion steps for your deal, and they can carry out some of the necessary steps for you. These steps can include any of the following:

• Update your asset registers
• Change invoicing details if necessary
• Update your website
• File copies of any appropriate shareholder resolutions at Companies House

Determining a price for the assets

When you transfer an asset from one company in the group to another, does it matter how much you charge for it?

The short answer is, yes. And it’s more complicated than you might think.

Intra-group transfers of assets usually take place at book value. However, in some circumstances, the transfer must take place at market value. Book value and market value are not necessarily the same amount, and which valuation is correct for you depends upon the specific facts of your arrangement.

Seek advice from a lawyer, an accountant and a tax specialist before you commit to a price. There are legal and financial consequences for getting it wrong, so it’s worth getting a professional opinion.

Tax-neutral transfers for companies in the same group

The good news is that intra-group asset transfers are usually carried out on a tax-neutral basis. In other words, there are no taxes on the chargeable gains.

This is the ‘no gain, no loss’ rule. The price will be deemed to be the seller’s base cost of the asset. The buyer assumes the seller’s original cost.

This applies if certain conditions are met, and there are some exceptions, so again, it’s worth getting specialist advice.

Making your asset transfer seamless

When you want to sell off part of your business, it’s convenient to package it into a particular company. That way, both the buyer and the seller are clear on what’s involved in the sale.

To create that package, you may need to 1) create a holding company, 2) create a new subsidiary, and 3) transfer assets within the group into the company that’s for sale.

Transferring assets between group companies cannot be done casually, and it requires careful planning. You should instruct professionals to keep you on the right side of tax compliance and company laws.

If you need help creating a holding company first, Quality Company Formations can help you set one up effortlessly and compliantly.