How to structure your trading and investment companies within your trust
Your trading company is high risk and makes surplus money. Your investment company is low risk and wants money to invest. How should they sit in a trust structure?
Not so long ago, I would have suggested that you use a holding company to create the link between the other two companies, whilst protecting the investment company from the trading company risk. The trading company declares its excess money as dividends to the holding company and no Dividends Withholdings Tax is levied because the shareholder is a company and not an individual or trust. The holding company then lends these dividends to its other subsidiary, the investment company. Under this arrangement, the Net Asset Value of the trading company is depleted by the dividends and if the company fails, the money extracted via the dividends is safe.
However, it recently occurred to me that there is a more elegant solution. Let the trust own the investment company and let the investment company own the trading company. Now the trading company declares its dividends to the investment company which uses them for further investments.
One less company to clutter up your trust’s affairs, less costs and no intercompany loans.