Change from a soletrader to limited company

sammiebmouse

Hi all,

Need help/advise asap please..

My OH set up as a soletrader after his previous employer went into receivership.

He has managed to take on some of his previous clients, and one of the clients has a policy to deal with limited companies only (something to do with their insurance I believe)

We now need to change from soletrader to limited company by the 18th Dec.

We asked our accountant and he has advised he can get a company in London to do it for £250.00 and they would need to set up a new bank account. At the moment this is money we do not have, and also we already have an account with abbey, which most of our customers have the details of. Getting a new bank account will entail more upheaval.

We wanted to try do it ourselves? Can anyone advise if this is possible?
The accountant advised:
The new company has to have a new bank account.



Setting up a company is not really a DIY job. I would advise you to get it done professionally.

Please can someone advise? Also if we should be private limited or public?

Thanks in advance!

fengirl_2

Setting up a limited company is an important legal undertaking and your accountant is right. It's not a DIY job - if you draw up the Mem and Arts incorrectly either Companies House wont register the company or you may find yourself with an unworkable governance structure. The company would be private - going public is for large organisations.
The company would have to have its own bank account because a company is a legal person in law and therefore quite separate from your OH - even if he is a director. It doesnt matter who the directors are, the company still exists as a person legally on its own.

hippyadam

The unfortunate truth is you will likely have to pay approximately £200-£300 pounds to buy an "off the shelf" company or for the creation of a brand new company.

As has been said you need to ensure all the documents will pass muster with co's house etc. I would also say approach the bank you use now & explain the situation, as they may be more willing to accommodate an existing business client with a new Ltd co account.

& remember when you go Ltd ensure your OH tells all his suppliers etc as any agreements in place now not officially transferred to the Ltd company will remain his liability, even if the new company folds...

Pennywise

Further to the earlier answers, there's even more to think about. It's not just the formation of the new company - to some extent, that's the easy bit.

The sole trader business will cease, so things like business insurance will have to be cancelled and rearranged under the company name which may well cost more. Contacts with existing customers, suppliers, finance providers (leases etc) will have to be re-arranged possibly meaning higher charges or early termination penalties - there'll undoubtedly be a lot of administration. If you use preprinted stationery, i.e. letterheads, preprinted orders or bills, etc., they'll need to be changed to reflect the change in legal structure of the business.

Accountants fees will be far higher even than the formation fee quoted. Cessation accounts will have to be drawn up for the sole trader, the new business will have to register with HMRC for corporation tax, PAYE and possibly VAT. Cessation of the sole trader could trigger some nasty income tax bills - which to some extent may be mitigated by claiming reliefs and elections. Accounting systems need closing down and new ones setting up. You need to work out whether it is best for the company to buy any vehicles used in the business or not - if they do, it may trigger nasty benefit in kind taxes.

I'd see it is absolutely crazy to rush into converting to a limited company just for the sake of getting one contract. There are often many good reasons for going limited, and done properly and in good time can be very beneficial. BUT, try doing it too quickly or on the cheap and it could work out very expensive for you in the long term.

System

£200 - £300? What do you get for this? A company the size of Shell ready set up?

A Ltd Co can be set up for less than £100 or even less than £50!

hippyadam

Pennywise wrote: »

I'd see it is absolutely crazy to rush into converting to a limited company just for the sake of getting one contract. There are often many good reasons for going limited, and done properly and in good time can be very beneficial. BUT, try doing it too quickly or on the cheap and it could work out very expensive for you in the long term.

Spot on :beer:

@ !!!!!!, see above :T

System

There is a difference between converting a sole trader to Ltd Co and I would probably agree with the price quoted, but somebody did mention that the creation of a Ltd Co alone will cost £300 which is totally over the top.

The unfortunate truth is you will likely have to pay approximately £200-£300 pounds to buy an "off the shelf" company or for the creation of a brand new company.

chalkie99

How long has he been trading?

Sounds like you are sailing close to the wind if you cannot raise £250 so you are going to be in difficulty with the other things Pennywise has raised.

ukbill69

Setup a new ltd company and wind down old company if no debts and then start a fresh.

zenmaster

There is some info on the difference between sole trader and limited company.

There really is no need to employ a third party to set it up; it can be done quite easily and cheaply online.

Here's one from Google for £17.95. Note I am not recommending them.

We registered one last year with no problems whatsoever. I will find out the website we used and post it up later.

There is no need to wind up the sole tradership if you don't want to. Just use the company to service those contracts that are necessary, though it would mean some additional paperwork.

PS You would be a Private Limited Company unless you want to issue shares on the stock market!