Take an Incorporation Breath
You may be in the process of deciding to shift your sole trader or partnership business across to a limited company. Based upon your circumstances it might be right for you. Why? Maybe because, going forward, for example, you can mitigate your tax liability or minimise the risk to your personal assets or enhance your credibility in the eyes of your suppliers and customers. If you reach the decision to incorporate and it is appropriate to do so, then great.
However, always take a breath and step back, as there are a number of important issues and implications to consider, along with processes to go through, before you get to the Promised Land. Failure to do so can cause repercussions further on down the line.
Let’s take Joe, Mary and Martha. They are in partnership together but intend to incorporate their business. What sort of things should they think about, in conjunction with their trusted advisers?
Are there any legal restrictions within the partnership agreement to prevent them from doing so? What assets are they contemplating transferring over to the company? The answer to that can have capital gains tax, land transaction tax, income tax, VAT, capital allowances and potentially inheritance tax and national insurance implications, both at the time of incorporating and going forward.
Who’s going to own the shares and in what proportion? What rights will be attached to these shares; for example, the right to dividends and voting? Do they want to draw up a shareholders agreement or have something put in the Company’s Articles of Association or cross option agreements to deal with potential issues, such as one of them wanting to sell out or the death of a director shareholder or any other disputes which may crop up in the future?
What about the legal issues surrounding the transfer of employees to the company and their pension rights?
Do Joe, Mary and Martha understand the fact that they will be wearing a director’s hat and not a partnership one going forward? Are they aware of the new legal responsibilities they are now obliged to take on? What about the legal aspects of assigning supplier and customer agreements and the transfer of any asset finance or lease agreements across to the company? How is it best to notify customers and suppliers of the change? What do they need to legally show on their emails, letterheads, website, invoices etc. going forward?
These are just some, definitely not all, of the issues which should be addressed before and during the incorporation process. So, stop and take a breath, it could save you time, money and hassle in the future.
We offer a full incorporation service which looks at whether or not it is the appropriate route to go down. Followed by covering off with you all the nuances and implications surrounding the incorporation itself. We can project manage the implementing of the incorporation process itself, ensuring that all the relevant action points have been completed.
Contact us on 01484 685413 or email firstname.lastname@example.org