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Company and partnership structured fractional ownership


Syndicate formation – via partnership or a company registered in England or Wales

Choosing the right structure for your syndicate is an important decision and will influence the way in which the syndicate operates in years to come.

 

There are two types of syndicate structure to choose from:

 

 

 

 

 

 

Option 1 – a partnership

 

A partnership allows each member to buy shares of an asset and then use that asset proportionate to their share value. This is very often the simplest route and is common if the share costs are relatively low. Examples of such assets might include motorcycles, cars, touring caravans, park homes and small boats. These assets can be bought off the shelf and there are no legal requirements imposed on buying such assets.

 

In most cases a partnership would be the most suitable form of agreement, and these are available at The Syndicate Store. The agreement would be put in place for the shared use of the asset – and it would contain provisions covering maintenance, running costs and exit strategies. In the UK, Her Majesty’s Revenue and Customs would view this type of agreement as applying to a private enterprise or hobby – and, as it would be non-profit-making, it would not be seen as a trading partnership under Income Tax rules. If the subject asset of the syndicate is intended to generate income (such as the renting of a holiday home), then a trading partnership should be formed, accounts filed and profits taxed and administered accordingly. Funding for the individual shares would, most likely, be personal savings or borrowings secured on shareholders’ personal assets, such as their homes.

 

Option 2 – a company

 

The second option is to set up a company. The way in which a syndicate operates under a company will not differ much to that of a partnership. However, the main difference with a company is when you pay for your share, you are not buying a share in the asset but a share in the company which will own the asset. 

 

Setting up as a company has minor drawbacks; if you form a limited company, it will involve set-up fees. It will also involve more complex accounts, which would have to be filed with Companies House each year. Although the entity would, most likely, be treated as a club or association, a review would need to be carried out every five years to ensure that the criteria were being met, so as to avoid having to complete a tax return.

 

There are, however, benefits to forming a company, such as the fact that the shareholders’ personal assets are protected should anything happen - although this is dependent on whether the lender of any finance requires a personal guarantee from a member of the company. In such case the guarantor(s) would become liable in the case of default. However, in terms of finance, there are a number of providers who will secure any borrowings on the asset itself. Another benefit is in the re-sale of shares; in a property, for example, if a share holder wishes to sell his or her share it is only the share which transfers without the need to reflect changes on the title or deed to the property allowing for an easier transaction.

 

Whether choosing a partnership or company scheme, it is important to recognise the importance of having an agreement right from the start. To formalise the partnership, a legal agreement needs to be drawn up detailing all the members’ share allocations, determining how the syndicate will be operated and administered – and, most important, setting out provisions for resolving disputes and executing the exit strategy.

 

Likewise, when registering as a company in England and Wales, a shareholders’ agreement needs to be in place. The company will need to appoint a Board of Directors, which will be personally responsible for its management and must act in the company's best interests (this could be any number of the shareholders).

 

Finally, it is important to note that setting up as a company in England and Wales means that any disputes arising between members in connection with the asset will be subject to laws in England and Wales irrespective of where the asset is located (in most cases).