ltd company vs sole trader

InsideInsurance

Mistral001 wrote: »

Edit: There might be reasons for going from Ltd to unlimited other than those of not having to file accounts for public record in this particular case.

There can be, which is why I said it was speculation as to the reason. Other reasons can be as it gives creditors more comfort knowing all shareholders/ members are personally jointly, several and unlimited liability should the company become insolvent. In theory it can be used as a way to argue better management of the Exec given they are personally liable for their companies actions.

I think its a fairly safe bet that for MSE it was a desire for accounts secrecy....

Mistral001

HappyMJ wrote: »

I'd prefer to be a limited company any day. Now that you have a limited company get insurance for the company. Professional Imdemnity would be a good one in your line of business. If the photo's don't turn out as the client expects you could be sued for not only a refund of the work done but damages caused. If you traded as a sole trader you would personally be liable but if you trade through a limited company then the company is liable. If it is successfully sued when it runs of assets it can be dissolved....and you can start up a new company and continue trading.
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Professional indemnity insurance can be obtained as a sole trader. So absolutely no advantage going Ltd from that point of view.

As sole trader you get sued, insurers pay up and you pay excess which is tax deductable. As Ltd company, company gets sued, insuers pay up and company pays excess and that is tax deductable. By the way the company does not go to court it is the director/s that do, so if you are a director you go to court in just the same way as if you are were a sole trader. As I say practically no difference.

InsideInsurance

Mistral001 wrote: »

Professional indemnity insurance can be obtained as a sole trader. So absolutely no advantage going Ltd from that point of view.

The advantage is mainly if you do not have PI cover or there is indemnity issues such that the insurer refuses to provide cover over the claim.

That said, in certain circumstances directors can be held personally liable for the actions of their companies even if they are limited - hence the existence of D&O Insurance

Wywth

InsideInsurance wrote: »

...
That said, in certain circumstances directors can be held personally liable for the actions of their companies even if they are limited - hence the existence of D&O Insurance

Very "certain" circumstances

Generally directors are simply employees of the company, employed by the company to run the company on behalf of the shareholders. They are not generally liable for any liabilities of the company.

Obviously, where they can become liable is where they have given a personal guarantee (often typical in new, director-owned companies that are seeking finance)
Would D&O insurance would cover such liability?

The other general instance where directors can be held personally liable are where they have acted illegally (especially as they have added responsibilties due to their role compared to the average employee)
Such action is often punishable by imprisonment, and no insurance will protect against that.

Where D&O insurance can be of benefit, is by funding the legal costs of a defence against such action which can obviously be quite high when someone like the H&SE are pursuing a claim.

Having said that, where a defence is successful, the courts often award such costs against the plaintiff. (but perhaps a director would not otherwise have had the available funds to afford such a successful defence)

Mistral001

InsideInsurance wrote: »

The advantage is mainly if you do not have PI cover or there is indemnity issues such that the insurer refuses to provide cover over the claim.

That said, in certain circumstances directors can be held personally liable for the actions of their companies even if they are limited - hence the existence of D&O Insurance

Yes if you find you are not covered because of some technical reason you will be personally responible for the claim if sole trader. So you need to make sure that you have premiums paid and that you read your policy carefully.

One other thing maybe that should be pointed out is that claimants (and their solicitors) will often look around for for a big comapny with good PII even though that company might only have a small part in the negiligant case and the main fault is that of the sole trader. They know that the sole trader can easily make themselves "a man of clay" and cry poverty when it comes to settle. Also people are often more prepared to sue companies than they are individuals who may have familes to fed etc.

Equaliser123

Unlimited companies are really uncommon. Usually very particular reasons for establishing them like that.

Really surprised nobody has mentioned the compelling reason for a limited company which is that it is often tax efficient to incorporate the business.

Mistral001

Equaliser123 wrote: »

Really surprised nobody has mentioned the compelling reason for a limited company which is that it is often tax efficient to incorporate the business.

Please tell us more.

There have been several discussions here before on this matter. General conclusion as far as I can make out is that there can be a saving on National Insurance and that is all.

Corporation tax + income tax as Ltd =
income tax as sole trader

InsideInsurance

Wywth wrote: »

The other general instance where directors can be held personally liable are where they have acted illegally (especially as they have added responsibilties due to their role compared to the average employee)
Such action is often punishable by imprisonment, and no insurance will protect against that.

It doesnt have to be as dramatic as something that is illegal and punishable by a custodial sentence.

http://www.healdlaw.com/news-84-When-may-directors-or-employees-become-personally-liable-for-company-liabilities-.aspx

A fairly short set of examples are there but it includes knowingly making false representations, intentionally breaching contracts the company has made, exceeding your authority, intentionally acting to the detriment of the company etc

Mistral001

InsideInsurance wrote: »

It doesnt have to be as dramatic as something that is illegal and punishable by a custodial sentence.

http://www.healdlaw.com/news-84-When-may-directors-or-employees-become-personally-liable-for-company-liabilities-.aspx

A fairly short set of examples are there but it includes knowingly making false representations, intentionally breaching contracts the company has made, exceeding your authority, intentionally acting to the detriment of the company etc

This is interesting. It basically says that dishonesty in business is rarely a criminal offense. However, I think if you lie about that £10M that you have and are not disclosing to the tax man that could be a criminal offense.

I suppose what this means is that if a second hand car dealer tells you that the car you are thinking of buying used to be owned by his grandmother who only took it out on Sundays to go to church then that would be dishonest if it was not true, but would not be a criminal offense. Though you would have a (non-criminal) case against the car dealer in law of contract if it turned out to have several owners etc.

On the other hand, if he "clocked" the car mileage that would be dishonest AND a criminal offense. So not everything that is dishonest in business is criminal. It all depends.

gb12345

Mistral001 wrote: »

Please tell us more.

There have been several discussions here before on this matter. General conclusion as far as I can make out is that there can be a saving on National Insurance and that is all.

Corporation tax + income tax as Ltd =
income tax as sole trader

Don't have time to check all the figures and allowances, but here is an example.

Assumed income (after allowable expenses) of £100k.

Sole trader -
Income tax will be c. £30,000

Ltd Company
Salary paid to person (and their spouse if they're intelligent) c. £415pm each - No tax due.
Corporation tax @20% on 100k less the salaries = c. £18,000
Remainder of income taken as dividends (husband and wife as 50% shareholders each) to keep them under the Higher Rate limit so no tax due.