Can Two Companies in the Same Field Share the Same Owner?

It is possible to have two companies operating in the same field with the same owner. However, certain legal and financial regulations must be adhered to in order to maintain distinct entity statuses.

Legal and Financial Considerations

Despite having the same owner, the companies cannot share the same name. According to business regulations, they must file separately for compliance, maintain separate books of account, and file taxes individually. These measures help separate the assets and liabilities of each company, ensuring that they are treated as distinct entities by law.

Intercompany Transactions and Compliance

If these companies choose to transact with each other—or for one company to provide services to the other—they are required to establish a transfer pricing agreement. Transfer pricing is the price set by the companies when they buy or sell goods, services, or intellectual property to each other. This agreement helps prevent the manipulation of profits or the avoidance of taxes.

At the end of each financial year, a transfer pricing audit should be conducted to ensure that the transactions are recorded fairly and transparently. This audit helps maintain transparency and compliance with tax laws and regulations.

Real-World Examples

There are instances where such arrangements have been made to gain tax advantages. For example, in India, certain incentives were recently introduced for new manufacturing units. Some companies registered new companies to gain from these incentives, using investment from their parent companies to set up the units.

While this strategy is not uncommon and can be used to gain benefits, it is important to note that the regulations are designed to prevent such practices. There is no current restriction on this, but as shown by the example with the recent incentives in India, the government can introduce restrictions to prevent abuse of the system.

Conclusion

Two companies with the same owner can exist in the same field, but they need to keep their operations legally and financially separate to avoid any legal issues or audits. For intercompany transactions, proper compliance procedures, such as transfer pricing agreements and audits, must be followed to ensure transparency and fairness. Companies should seek professional advice to navigate these complexities and ensure full compliance.

Contact Us for Assistance

If you need any assistance with maintaining separate company status or complying with intercompany transaction procedures, feel free to reach out to Our experts can help ensure that your business is fully compliant and meets all legal and financial requirements.