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Buying a second business

17 July 2008
Buying a second business

When purchasing a second business, there are certain problems operators should be careful to address. Emma Ladd of lawyers Stevensdrake gives some pointers

THE LAW

The purchase of a second business is mainly a commercial decision. However, there are several legal issues you will need to consider, particularly in relation to how you structure your group of businesses and how you deal with employees.

EXPERT ADVICE

If your existing business is already operated through a limited company, you'll need to consider whether to purchase your second business in the name of the same company.

Doing so may improve your balance sheet (you'll have more assets) but you will also be amalgamating liabilities. If one business fails, it could drag the other down with it. Trading through separate companies allows you to separate these liabilities, so failing in one will not make the other insolvent.

It's important to take tax advice as the structure you choose will have a significant effect on the tax you pay. This is especially the case if one of the businesses is lossmaking, as the structure will determine whether those losses can be used to offset profits in another part of the group.

Landlords and banks may require cross-company guarantees, meaning that even if you split off the liabilities of a lossmaking business, a landlord or bank may be able to recoup its money from the profitable business in any event.

Taking on staff in a second business may give rise to problems. Pubs and restaurants generally operate independently of each other so redundancies shouldn't be a major issue unless you're planning on taking the new business in a new direction or getting rid of management.

If this is the case, you must consult with your employees correctly. If redundancies have to be made and both businesses are owned by the same company, consider whether there's an appropriate vacancy in your other business that the employee could fill.

If you're considering relocating staff from one business to another, make sure their contracts of employment allow you to do so. If they don't, you'll have to get the employees to agree to the variation, perhaps through incentives. This may increase the cost of the relocation significantly.

If staff members have accommodation, this may cause additional problems. It may cause resentment if the policy of staff accommodation is not the same in both businesses. If you're taking accommodation away from staff, you need to consider whether you can do this under their contracts. If you're giving accommodation to staff, you should consider whether it may be classed as a benefit in kind (on which the employee may have to pay tax at income tax rates).

As you take on more businesses, your role as a manager will change. It will become increasingly difficult to actively manage both businesses on a day-to-day basis. You may need to concentrate on the strategic direction of the businesses and the group as a whole. It may be more cost-effective to employ a manager for each business, who can deal with issues on the ground - organising and managing staff, ordering stock, etc - leaving you free to deal with wider concerns.

CHECK LIST

• Think about how you want to structure the purchase and the group as a whole. Do you want to purchase it in the name of your existing company or incorporate a new vehicle?

• Think about how you will deal with your staff. Are there any differences between the two sets of staff that must be standardised? Will you have to make any changes to your staff organisation?

• Consider how you will have to change your management structure to deal with two businesses rather than one.

BEWARE!

Running two businesses is harder than it looks. Although you will not be as involved in the day-to-day decisions, you should still keep in touch with what's happening and schedule regular meetings with your managers.

CONTACT

Emma Ladd, associate Business Law department, Stevensdrake Tel: 01293 596982 www.stevensdrake.com

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