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Conversions: Sole trader to Ltd company

Sole trader to limited company

When an established sole trader's business is incorporated, that is turned into a limited company (nearly always a company limited by shares), the proper procedure is for the new limited company to be registered, a date chosen for the transfer of the business, and then for the sole trader in his personal capacity to enter into a contract with the new company for all (or some) of the assets of the business to be transferred to the company in return for shares in it.

e.g. If the existing business has assets worth £5,000, these will be listed in a schedule to the contract and, typically, transferred to the company in return for 5,000 £1 shares issued to the owner of the business.

The owner of the business will then have limited liability in respect of all transactions that take place after the date of the transfer, but will remain personally liable for any debts incurred as a sole trader before the date of the transfer. There may be other advantages, depending on the circumstances.

From an accounting point of view the most convenient date for the transfer will usually be at the end of the financial year of the existing business so that accounts can be drawn up for whole years, and your accountant should be consulted about this matter..

Tax warning
Changing from a sole trader to a limited company will have tax consequences both in respect of the transfer and the way the business is taxed in the future. We cannot give tax advice and we strongly recommend that this course is not undertaken without proper accountancy advice.

Our service
The Company Law Solutions service will include:

  • guidance as to the applicable procedures and requirements
  • registration of the new company
  • drawing up the contract
  • all procedures for the contract to be approved by the new company and the allotment of shares to the sole trader. Care must be taken with this as it will be an allotment for non-cash assets and a transaction in which the director will have a personal interest. See directors' conflicts of interest for more information.
  • our straightforward, step by step guide to completing the procedures
  • checking by us when the documents are completed (if required)

Costs
Most conversions of this type will be covered by our benchmark price for this service. Please see our prices guide. The registration of the company will include our standard articles of association. If any special requirements are provided there may be additional costs.