Sole Trader Vs Limited Company?

Pennywise

martindow wrote: »

Partnerships can be OK if you have a good agreement setting out who is responsible for what and what would happen if someone wants to leave.

Valid point, but only as good as the amount of money you can afford to pay a solicitor to defend yourself and invoke the clauses in the partnership agreement. They don't enforce themselves unfortunately, and often you're looking at four figure sums in legal fees to force the other party to honour the agreement.

The main benefit of a partnership agreement is the "thought process" behind it which crystallises each partners' views as to what they want in various scenarios, etc. Often it's this thought process which is more valuable than the agreement itself as often it will highlight the fundamental differences of approach, meaning compromise at the earliest possible stage, or more often than not, the partnership never happening in the first place.

The worst thing you can do is simply both sign a solicitor's standard partnership agreement that neither of you really understand and to which you've had very little input - that's a complete waste of money.

Best approach is to work it out between yourselves first, then write down the key points on a sheet of A4, which you then give to the solicitor to turn it into a partnership agreement, i.e. take your agreement and wrap the legal terminology around it.

heretolearn_2

No offense but if you don't trust your accountant's advice, you need to find a new accountant. You need to be able to trust your professional advisors, whatever field you are in.

Nazitf

PlutoinCapricorn wrote: »

That is a good point about businesses preferring to do business with a Ltd. Company not a Sole Trader.

Can anyone shed any light on why this is?

I initially worked part time as a consultant and my clients were happy to pay me directly (i.e. working as a sole trader). However, as the number of my clients grew, I noticed that some would refuse to use my services unless I had a limited company / used an umbrella company.

Savvy_Sue

There are various reasons, depending on the line of business and the size of your respective organisations.

If you're providing a service on a self-employed basis, a company might insist on you being a ltd co or using an umbrella company so that they are absolutely clear that you are not and never were an employee, so HMRC can't come after them for tax and NI.

If they're providing goods or services to you, they want to be sure a) that they'll be able to recover money if you don't pay and b) that you're a well established reputable company. Now, being a ltd doesn't guarantee either of those things, but it does make things slightly simpler: they can go after the company if you don't pay, and the company might have more to lose than you as an individual, plus a company can't 'do a runner' - at least not without breaking more laws!

amt27

the decision comes down to if the company is going to require any sort of debt or credit from suppliers,

as some have mentioned going LTD will mean you have no liability if the company fails and cannot pay its debts,
however banks and some creditors will require a director's guarantee to pay any debts/lending, which means being LTD is useless and you will be liable, you can get rid of these guarantees once the company has filed several years of accounts and is credit worthy,

being LTD means you file all your accounts and company details with Companies House, it's therefore easier for creditors to find out who you are and get insurance on any credit they provide, hence the reason some companies will only deal with LTD companies,
it's just a lazy way of doing business and understanding who you are doing business with, on the part of the creditor, rather than relationship building and gaining trust of who you are lending to,

you should be aiming to be profitable from day one, some advisers say 3 years but this isn't feasible any more, profit and good cash-flow will prevent you from requiring any sort of credit or lending,
if you are making good profit, do you want the rest of the world knowing about this and much more from your companies house records? many wouldn't