Many architectural practices include all aspects of their operations within one legal entity. However, as firms grow, there are often differing parts of the business which may benefit from being divided into separate entities.
Having the right structure in place can reduce commercial risk and allow greater accountability of business divisions, which can lead to easier employee incentive schemes too.
Some of the key considerations when designing and developing a group structure are as follows:
International
Many firms are utilising international architectural expertise to enhance and support their UK offerings. Firms are also expanding into new markets and consideration is required with regard to setting up as a branch or a subsidiary to conduct work in foreign countries.
The plan for the overseas operation often determines which structure is more suitable, with more ring-fencing possible through a subsidiary. Having a separate entity also enables cross-border charges to be raised based on the work performed. This is considered in more detail below:
Property
Whilst it is common for practices to rent office space, some firms own their premises.
Consideration is required as to whether it is optimal to have such premises within the main trading structure or for it to sit outside separately.
This can be complicated by the ownership structure and what happens to any share of such property, attributable to partners /shareholders in the event that they retire.
Commerciality and risk
Claims against architectural firms have been in the news in the wake of the Grenfell tragedy and we are seeing insurance premiums and exclusions rise as a result. This has highlighted that it may be beneficial to split different elements of a business into separate entities, allowing each to focus on areas of speciality, reducing the overall risk to the wider practice.
Employee incentives
Incentivising and retaining the best talent in the industry is a significant challenge.
Having potential share ownership through the use of options, including EMI, over all or part of the business, is an attractive way to encourage retention of those you wish to retain.
We have also formed employee ownership trusts for architectural companies which enabled wider employee-ownership via an indirect holding.
Research and Development
Research and development claims are not possible in an LLP as a claimant company must be subject to corporation tax.
However, should a limited company within the group incur qualifying research and development expenditure, it could make a claim.
This means that LLPs can still indirectly benefit from R&D claims, but care must be taken to ensure these are not set up with the aim of avoiding the payment of corporation tax. Commercial decisions should drive such a structure.
These points are just some of those which should be considered as a business evolves and the group structure requirements change. It is key that such structures are tailored to individual circumstances and can be adapted as goals and requirements develop over time.
If you would like to discuss if your architectural business structure could be optimised, please contact Tom Woods Below:
CONTACT MENZIES Architectural Services TEAM