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Case Study

1. Client with multiple companies, cross-charging of services

Amongst many of our client companies, it is common that multiple companies are set up to handle
different segments or divisions of the business they are in. There are various possible rationale
behind this structure:

  • To ring-fence their risk exposure;
  • Different segments or divisions have different shareholders;
  • Various tax planning rationale

Often, when clients come to us for advice, they do not know or have forgotten the rationale for setting up multiple companies. Since this rationale is not known or forgotten, the lack of proper cross-charging of services amongst the group of companies often results in fluctuating and illogical gross profit margins. This can have detrimental consequences such as the following:

  • certain segments or divisions are permanently loss-making;
  • may invite tax queries whether client is engaged in profit-shifting;
  • if different segments or divisions have different shareholders, profit sharing calculations are distorted and may lead to disputes.
  • certain expenses may be disallowed for tax purposes as they are not incurred for that business.

Good corporate structure or tax planning requires proper execution in order for it to work. The SKYAP Consulting team helps clients and business owners to understand the rationale by explaining in simple, easy to understand, layman terms and assist in the review of the accounts and submission of tax returns to ensure proper execution.

2. Client has only one company, doing various unrelated businesses

On the other extreme, we have met clients who only set up one single company, to undertake a variety of unrelated businesses. This has undesirable risks, with the foremost being, what if a new business fails? This new business may impact existing, established profit-making businesses adversely.

SKYAP Consulting helps clients balance their needs for risk management and lower compliance costs by designing a proper corporate structure and implementing it. We handle incorporations and corporate secretarial work and do not encourage clients to incorporate companies they do not need in order to boost up our fees.

Upon taking on secretarial file transfers and reviewing the corporate structure, we advise clients to streamline the structure by striking off unnecessary companies, if need be.

3. Dispute amongst shareholders

Once in a while, we meet shareholders who have fallen out and wish to exit the business. The immediate need is for a valuation to be done so that a fair and reasonable price may be determined for the shareholders to arrange for the shares to be bought/sold.

Besides advising the shareholders and mediating, we ensure all their rights are taken care of, especially:

  • shareholder loans and other advances to company;
  • personal guarantees furnished to financial institutions for facilities in the company;
  • claw-back provisions or back-to- back indemnity

It is unfortunate that a good working relationship deteriorated to this point. At SKYAP Consulting, we do our best to ensure the shareholders part ways smoothly and as amicably as possible.