Are there ways to limit COVID-19 harm to your business?

A natural instinct during uncertain economic times is to take a critical view of your business and then ask “What if…?”

Rough seas ahead

​We are well aware of the economic pressure being faced by businesses across the land. Not only are customers prevented from attending business premises, but staff are naturally worried and suppliers are facing problems all of their own. With weeks or possibly even months of this ahead it is a sad reality that serious economic harm will be felt by many.

Help is already being offered by a variety of different bodies. The government, in conjunction with local authorities and HMRC, has already stepped in with various support measures. Similarly, the insurance industry has offered clarification about business interruption cover to those with the foresight to have opted for it. But even with all this in place, there is a serious risk that many businesses will suffer.

Time to act

Against that background it is worth taking a critical look at your company to see how best to arrange matters to weather the storm ahead.

If your business operates distinct divisions, it might be time to consider a group structure. Typically, this would involve shareholders owning shares in a holding company rather than owning the actual operating company itself. The holding company’s only purpose is limited to owning shares in each operative division, with each being set up as a subsidiary company. Even if your business only carries out one work type, it might still be possible to operate through separate subsidiary companies and split by location.

The effect of such a structure would be to limit the effect of any problems in one part of the business harming the others. For example, if you were subject to a large claim, unpaid invoice, or even significant problems with a specific customer, problems could be kept within that subsidiary rather than allowing the issue to spread across the remaining viable parts of the business.

Benefits of incorporation

Even if your operation is on a smaller scale there are steps that can be taken. For example, if you operate as a sole trader or general partnership outside of the security of a limited liability entity, it may well be worth transferring your business into a newly formed limited company or limited liability partnership arrangement. Setup costs for such structures need not be excessive, particularly given the potential advantages that limited liability offers, and can provide an equally flexible business model.

Seek advice before actingA final word of warning is that any such changes could have profound legal and tax consequences, and you should always seek professional advice from our Essex-based Commercial Team prior before putting any changes into practice. ​

More information

​If you would like to find out more about how the team can help you, contact our Company Commercial Team to arrange a free legal review.

This article was written by Edward Garston, Partner in the Company Commercial Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of March 2020.