Question About Limited Company

[barry1010]

Can anyone shed any light on this? My friend retired four years ago and sold his successful small business as a going concern to one of his employees.
The business has continued to thrive and is doing very well, I am still a customer.
I am puzzled because it was sold as a limited company. My friend resigned as director and the new owner was appointed director. Three months later the limited company was dissolved and the business continues with the same name minus the Ltd.

I am curious as to what the advantage would be to the new owner to dissolve the limited company and continue as a sole trader.

[dannyk13]

No shareholders to pay dividends to.

[dannyk13]

A limited company is an organisation that you set up to run your business. ... This means that each shareholder's responsibility for financial liability is limited by the value of the shares that they own but have not paid for. Company directors of such companies are not responsible for business deb

[barry1010]

But if the business goes belly up he will personally liable for any debts. A limited company can have only one shareholder who is also the director, I think, so he would still keep all the profits.

[Peter Pedant]

probably - cheaper the way he wanted to run it

two sets of accounts - your own and the companies. The company pays a dividend ( or your wages ) and then you pay tax on it

oh...... he dissolved it when corporation tax became the same as income tax and there ceased to be any ta advantages

How do you buy the company - you buy all the shares - and then in a contract buy the machinery goods
and you buy the 'good will' that is the customer list and the name and that may be up to a years turn over

[ToraToraTora]

there are a lot more regs for a company and also it's a lot simpler to be a sole trader if at all possible. It may also be a way to avoid the provisions of IR35 and avoid Employers National insurance but that depends on the nature of the business. Can you summarise what the business does?

[Peter Pedant]

yeah you and I dont start ltd co
because we may go backrupt

that is what Trump and Green do - not in their league
we're just liddle guys

[satprof]

It's much more common for Sole Traders to become Ltd. companies than the other way round. This link https://gorillaaccounting.com/blog/what-are-the-pros-and-cons-of-being-a-sole-trader/ provides a good basic approach to the Sole Trader v Ltd. issue.

[Peter Pedant]

// Can you summarise what the business does?//
I wouldnt
it is all ya-ya
none of us are gonna do it
none of us are gonna take the Companies Act 2006 to bed as must-know bed time reading

[barry1010]

It's a retail shop with 12 long standing employees. He has bought the premises next door so that he can expand next year, it really is very successful. Due to the nature of the business there is no way of 'fiddling the books' - everything he sells is traceable and accountable.

[Peter Pedant]

yeah sat prof URL is a good exam answer for Accounting 101
( erm having done that didnt do very well)

[barry1010]

That's what I thought, satprof, it is unusual for a private limited company to change to sole trader.

[Peter Pedant]

// It's much more common for Sole Traders to become Ltd. companies than the other way round. //
well yah
the company just ceases trading solvent - sells off stock and submits final accts

I think people incorporate when they find that sole trading is limiting and they wanna do something bigger ( like managing welder ratheer than welding themselves)

I DIDN'T incorporate when the acct said - you will have to pay CGT on all the assets you assign/sell / put into the company ( and the rates of tax are the same) and I said christ I am glad I asked you

[ToraToraTora]

ok barry 10:24, then I see no reason to revert to sole trader. It is simpler as a sole trader but financially better to stay ltd.

[barry1010]

It's a mystery. I may have to ask him next time I speak to him.

[Peter Pedant]

// Due to the nature of the business there is no way of 'fiddling the books' - everything he sells is traceable and accountable.//

please gentlemen this is a public site - get us get away from accounts are used to diddle the tax man and accept
( summervilles dictum) that accounts are a way of working out exactly what one owes the tax man and no more

( yeah well the judge didnt quite say that but what they hell this is AB )

[ElanaWeeks]

Hey, pandemic did not serve as such a solution? or did he sell it before? As a former small business owner, I can say that the pandemic will "kill" 80% of small businesses - I had a small coffee shop in the city center, which was developing well. But for the last 2 months it has cost me very dearly, there are very few clients for the pandemic, and what the state pays out will not be enough to service all the equipment (I bought the equipment on credit) and I had to sell it.
Https://exitadviser.com/business-for-sale helped me sell, they helped me find a buyer and helped me collect all the documents. Sometimes selling does not mean losing

[barry1010]

Elena, the business was sold before the pandemic as I clearly stated in the opening post - it was sold 4 years ago.
The pandemic has meant the business is busier than ever to the point he has bought the premises next door and taken on new staff. Why you think an American property seller can be of interest to a thriving UK business I have no idea unless you are posting spam.

[Zacs-Master]

It may be (especially as you say he’s expanded) that This was difficult to finance. A Limited Company can find it difficult to obtain a credit facility without any track record.

A sole trader is more ‘private’, not having to post company accounts for everyone to see on the companies house website.

[barry1010]

He has only just bought the property next door, I don't think anyone expected the post office to move. You could well be right about the financing and desire for privacy though, Zacs.

[Zacs-Master]

In these strange times (not just COVID related but brexit related) banks are being very stringent in whether they lend. High street businesses are folding daily so it may be the only way he could obtain a loan was to ‘put his money where his mouth is’ and take full responsibility rather than be shielded by the ‘Limited’ bit. It may even have been a stipulation of the loan.