If you are in partnership or operate as a sole trader, you may worry about the risk of your home and other personal possessions being at risk from creditors if the business fails and it has insufficient assets of its own to meet its liabilities.
This is a real risk as there is no legal distinction between your assets and those of your business so creditors can take action against you personally to recover their loss.
The core principle behind the limited company is that the liability of its shareholders is limited to the amount they have agreed to pay for shares. Many companies have as little as £1 of issued shares so the maximum those shareholders could be required to contribute if the company were to fail is £1 if they had not paid that already.
Limited liability partnerships (LLPs) operate on a similar basis and each partner can be liable for the losses of the business up to the limited extent of his capital contribution if the business were to fail.
There are circumstances where directors and members of LLPs can become personally liable but with the application of common sense, possession of moral fibre and a little input from your solicitor, these can easily be avoided.
Deciding whether to form a limited liability partnership or a limited company will largely depend on your personal circumstances and whether you are trading on your own or in a business relationship. In the first instance it is probably best to speak to a financial advisor who can discuss the different tax treatments with you and work out which entity is likely to give the more favourable treatment.
Once this decision has been made, the appropriate body can readily be formed and the legal process can get underway. The assets required to operate the business will need to be identified to make sure that the appropriate legal transfer process is put in place to transfer them into the new body which I can guide you through. You may decide to retain control of certain assets which you wish to lease or licence into the business and this is an ideal opportunity to assess the position.
If you are an existing partnership, the change of status is also an ideal time to reconsider the structure of your existing partnership agreement to make sure it still does what you want it to.
Once registered you will be required to disclose a certain amount of information about your business, its ownership and annual accounts which will be accessible by the general public – a small price to pay for the peace of mind!
Click on the link below if you would like to arrange a free 1 hour legal consultation. This can be face to face if geography permits or over the telephone. Legal Services for Business is based between Farnham and Fleet and can offer legal advice across Surrey, Hampshire, Berkshire and London.