Registered a Ltd company for sole trader?

[Ray Stafford]

Lots of different points being mixed together here.

There are three main reasons that our customer choose to go Ltd:

1. To protect their personal assets from business risks
2. To minimise their tax liability
3. If the business is owned by more than one person, a ltd co shareholding structure gives more flexibility

The benefits of 1) are not as clear-cut as some people think, but they are real. Many wholesalers (including us) will ask for a directors guarantee unless the ltd company has significant assets and several years trading history. The bank and other lenders are likely to take a similar line. My personal view is that the best way to protect those assets is to trade in such a way that you don't enter into commitments that you can't fulfil. I appreciate that this can be difficult when subbying on new-build for example, which is why we don't chase customers who specialise in that line of work, because they are inherently risky.

To be honest, you are unlikely to be pursued by the authorities if your Ltd company goes bust unless
a) you owe the taxman lots of money or
b) you do it over and over again

The tax liability issue depends on individual circumstances. The best advice our accountant ever gave us was "run your business to make a profit, not to avoid tax". Unless the sums are quite large, you need to be aware that you might find yourself running up accountancy bills, and using up your own time on stuff that could have been earning money.

The business of mixed ownership probably doesn't apply in this case. I tend to be wary of new starts that are run by more than one person anyway - new partnerships often dont survive the growing pains, and sleeping partners tend to wake up quickly if they dont get the return they were expecting.

 

[Ermintrude]

Another intelligent post from ray. Bet he's just a vegetable at work !

 

[lame plumber]

Ray gives it from the other side of the fence 🙂

 

[Centralheatking]

Very sound advice from Ray maybe he did not spell it out but suppliers will not always allow credit accounts to small and new ltd companies cause when they go tots up ray and co cannot get the dosh back but with sole traders etc they can take your truck wife etc CHK

Lots of different points being mixed together here.

There are three main reasons that our customer choose to go Ltd:

1. To protect their personal assets from business risks
2. To minimise their tax liability
3. If the business is owned by more than one person, a ltd co shareholding structure gives more flexibility

The benefits of 1) are not as clear-cut as some people think, but they are real. Many wholesalers (including us) will ask for a directors guarantee unless the ltd company has significant assets and several years trading history. The bank and other lenders are likely to take a similar line. My personal view is that the best way to protect those assets is to trade in such a way that you don't enter into commitments that you can't fulfil. I appreciate that this can be difficult when subbying on new-build for example, which is why we don't chase customers who specialise in that line of work, because they are inherently risky.

To be honest, you are unlikely to be pursued by the authorities if your Ltd company goes bust unless
a) you owe the taxman lots of money or
b) you do it over and over again

The tax liability issue depends on individual circumstances. The best advice our accountant ever gave us was "run your business to make a profit, not to avoid tax". Unless the sums are quite large, you need to be aware that you might find yourself running up accountancy bills, and using up your own time on stuff that could have been earning money.

The business of mixed ownership probably doesn't apply in this case. I tend to be wary of new starts that are run by more than one person anyway - new partnerships often dont survive the growing pains, and sleeping partners tend to wake up quickly if they dont get the return they were expecting.

 

[Ray Stafford]

Very sound advice from Ray maybe he did not spell it out but suppliers will not always allow credit accounts to small and new ltd companies cause when they go tots up ray and co cannot get the dosh back but with sole traders etc they can take your truck wife etc CHK

Its more than just that CHK, although what you say is true.

The best person to judge the level of risk in a business is the owner. If the owner is using their time and money to create a limited company to protect themselves from the risk in their own business, what message does that send to potential creditors?

 

[Killy Bing]

Its more than just that CHK, although what you say is true.

The best person to judge the level of risk in a business is the owner. If the owner is using their time and money to create a limited company to protect themselves from the risk in their own business, what message does that send to potential creditors?

fully agree.

But out of interest, as we move from sole trader to ltd do we have to notify you?
also would our credit get reduced ?

 

[Sag]

Its more than just that CHK, although what you say is true.

The best person to judge the level of risk in a business is the owner. If the owner is using their time and money to create a limited company to protect themselves from the risk in their own business, what message does that send to potential creditors?

It's good business sense to protect yourself. It doesn't mean you are a conman for running an ltd (although there are far too many of them out there).

That's like saying having PL insurance means you know you're gonna screw up. That's not the case, you just value the security afforded to you by paying the premium.

 

[Killy Bing]

It's good business sense to protect yourself. It doesn't mean you are a conman for running an ltd (although there are far too many of them out there).

That's like saying having PL insurance means you know you're gonna screw up. That's not the case, you just value the security afforded to you by paying the premium.

The flipside is why does a new business have to be limited when they don't have the work to threaten their personal assets?

 

[Ray Stafford]

fully agree.

But out of interest, as we move from sole trader to ltd do we have to notify you?
also would our credit get reduced ?

You have to do more than notify us. The term "going limited" is misleading. You aren't changing at all.

When you start a limited company, it is a new legal entity. If it wants credit, it must apply for it in its own name.

If you are prepared to sign a directors guarantee, (which is incorporated into our account application form) then the limited company account is likely to "inherit" your credit status.

If you aren't prepared to sign such a guarantee, then your personal credit record is of no help, and we probably won't extend any credit at all to a new company until it has a few years trading history, and preferably some value in the balance sheet.

 

[Masood]

The flipside is why does a new business have to be limited when they don't have the work to threaten their personal assets?

I went Ltd from day 1. Nothing to do with protecting assets, just the way I wanted to structure the company. I had (still have) a vision and strategy, and a Ltd. company fit that better than sole trader.

I've had no trouble opening trade accounts but that may be because I didn't open accounts until I'd been trading for a while, always paid my bills, and showed through my purchasing history that I have a viable business.

 

[Ray Stafford]

It's good business sense to protect yourself. It doesn't mean you are a conman for running an ltd (although there are far too many of them out there).

That's like saying having PL insurance means you know you're gonna screw up. That's not the case, you just value the security afforded to you by paying the premium.

No, with respect, it isn't quite the same, and con-men aren't the issue. (Their MO is usually different - cloning was all the rage last year). The fact is that choosing a limited company as your mechanism sends a signal to lenders that you might be concerned about risk.

Any business which gives credit is effectively a lender, just the same as a bank. We make credit decisions based on imperfect information. It doesn't matter what YOUR reasons for starting a limited company are, you are putting yourself in a higher risk group.

Its like buying a Porsche 911. YOU may know that you will only drive it sensibly, but your insurer will put you in a higher risk category regardless.

 

[Killy Bing]

I went Ltd from day 1. Nothing to do with protecting assets, just the way I wanted to structure the company. I had (still have) a vision and strategy, and a Ltd. company fit that better than sole trader.

I've had no trouble opening trade accounts but that may be because I didn't open accounts until I'd been trading for a while, always paid my bills, and showed through my purchasing history that I have a viable business.

Ahh see you weren't a new company applying for credit then!
This reminds me.

 

[lame plumber]

As Ray points out so well, some people running ltd companies for the wrong reasons, which has lead me to refuse work from certain builders wanting me to sub for them, and I have been proved right in my thoughts in the past to follow this line.

 

[Ray Stafford]

There is another side to this, which is the nature of your purchases.

Merchants make different margins on different types of product. For us, the level of margin is roughly the same as the banks interest rate.

Since heating products, and particularly boilers, have very low margins, our appetite for unsecured lending to a limited company doing lots of boilers is pretty low. Spend more on higher margin product lines, and our appetite for risk may be higher, as our rewards are higher.

Don't forget that all the bad debts that a merchant takes are paid for by the good customer who do pay.

 

[Sag]

Yea Ray, two different views to risk. Your risk averse to new ltd's and i'm risk averse to my personal lifestyle being ruined by a business. Neither is wrong in their approach and we may never do business due to this, but I stand by limiting your exposure is good business sense. You do it by selective credit accounts and I do it by being an ltd.

What if some major jobs I'm doing Don't get paid because the customer goes bust. As an ltd I can save my family being effected by this. As a sole trader I'd be in the crap!

 

[lame plumber]

good business is picking your work to lower the risk, and your better refusing some jobs than running the risk of not being paid. Being limited and taking higher risks isnt good business sense at the end of a day, thats the reason this country is in the doldrums now, down to poor financial controls and too much risk, which from your previous life you would realise.

 

[Sag]

My previous life? My previous job?

You speak as if you know something/anything about me, you don't.

I didn't say go ltd to take bigger risks. I said ltd protects you.

I tell you what, don't have any PL insurance and just 'be careful' and select your jobs wisely and see how far you get.

 

[Killy Bing]

Ahhhh two schools of thought.
neather are right and neather are wrong
but rays only going to easily give credit to one of them......

 

[lame plumber]

a long way to date as I always found the advice received from financial advisers and finance companies to be detrimental to my pocket, so I choose not to use them and prefer not to waste my earnings on PL insurance and the like.

I plan to make profit not to fend off loss

 

[Sag]

So you think that's a clever move?

What happens if you get a lucrative job for a very expensive house?

Do you turn it down due to the risk of causing more damage than you can afford to repair or do you take it on because 'your careful enough' that you don't need PL?

Do you have home insurance? Or is that a waste of money too because you're too careful to have a flood or storm ruin your property?