Corporate Structuring for Planning, Shareholders, Cash-flow Planning, and Optimising Tax

Corporate structuring and planning lies at the heart of successful UK businesses.

Getting corporate structuring right lets you balance differing shareholder needs, plan how money goes in and out, and optimise tax outcomes.

Get it wrong, and you risk disputes, unexpected tax bills, restricted cash-flow and even legal challenges.

This article summarises some of the key considerations when looking at corporate structure. In all of these, the key question is what are we trying to achieve and the hardest question is how might things change in the future and how do we cater for potential changes without hamstringing the business.

Why Corporate Structure Matters

A clear corporate structure:

• Defines voting and dividend rights so that founders, investors and directors each know where they stand.
• Controls how shareholders fund the business (share subscriptions, director’s loans, capital contributions) without skewing tax relief or creditor risk.
• Sets out the most tax-efficient routes for extracting value (dividends, salaries, loan repayments, exit proceeds).
• Limits exposure under the Companies Act 2006, Corporation Tax Act 2010, Income Tax (Trading & Other Income) Act 2005 and the Stamp Duty (Shares and Securities) Regulations.

Key Practical Considerations of Corporate Structuring and Planning

1. Share Classes and Shareholder Agreements

• Ordinary vs preference vs deferred shares vs option arrangements: tailor dividend, voting or liquidation rights.
• Articles of Association (Companies Act 2006, s.21–22) and bespoke shareholders’ agreements set out drag-along, tag-along, minority protections, voting and pre-emption rights.

2. Funding the Company

• Equity injections provide access to Entrepreneurs’ Relief (Business Asset Disposal Relief) on disposal (10% CGT up to £1 million lifetime limit).
• Directors’ loans and convertible loan notes may attract corporation tax relief on interest but must respect transfer-pricing principles if between group companies (CTA 2010, s.243).
• How might future capital be raised and what is the likely impact on existing capital contributors?
• What is the tax residency/corporate structure of different stakeholders and how does this impact their preferred structure into the business?

3. Extracting Money

• Dividends: Taxed at 8.75% (basic rate), 33.75% (higher rate) or 39.35% (additional rate) after the £500 allowance.
• Salary and bonuses: Income tax plus employer/employee NICs; pension contributions via salary sacrifice can save up to 47% relief.
• Loan repayments: Return of capital (no further tax) vs interest income (subject to personal tax and possible withholding).
• Exit: Share sale vs share buy-back (Stamp Duty at 0.5%; CGT at 10–20% or 18–28% on residential property).

Example: Anna and Ben co-found a software start-up. Anna invests £100,000 for 40% equity; Ben contributes IP and services for 60%. They worry that:

1. Anna may want priority on dividends to recoup her cash.
2. Ben needs to pay his mortgage and can’t wait years for an exit.

Potential Solution:

• Issue “A” preference shares to Anna carrying a fixed dividend, redeemable over five years.
• Issue “B” ordinary shares to Ben with enhanced voting but residual dividend rights.
• Draft a shareholders’ agreement to limit future dilution and set out dividend distribution triggers.
• Advise on extracting interim cash via low-tax “director’s loan” repayments and modest dividends, preserving both cash-flow and CGT relief on Anna’s eventual exit.

Outcome: Anna recoups her capital at minimal tax cost; Ben retains control and shares growth; the structure meets both parties’ objectives.

How SAIL Can Help

1. Corporate structure reviews and re-organisations.
2. Drafting Articles and shareholders’ agreements under the Companies Act 2006.
3. Funding and extraction planning: equity, debt, pensions and loans.
4. Tax modelling: Corporation Tax, Income Tax, NICs, CGT, SDLT and IHT.
5. Exit planning and roll-over relief advice.

An optimal UK corporate structure aligns shareholder interests, controls how money is injected and withdrawn, and minimises tax. With clear share classes, funding routes and extraction strategies you avoid disputes, strengthen governance and enhance returns.

To discuss your bespoke structuring needs, book a call with us here.

Indemnity
This article is for general information only and does not constitute personal tax or legal advice. Individual circumstances vary and SAIL International gives no guarantee of outcomes. Readers act on this information at their own risk.