Why do some companies insist that suppliers are Ltd.

Mistral001

I was in business for 25 years as a sole trader and never once had a client refuse to use my services because I was not a Ltd. Company.  Yet I have seen on this forum  a few instances over the years reports of some companies insisting on their suppliers being Ltd.  Why do these companies have this policy? It cannot be for doing due diligence on the company as Companies House does not check on details given when applying to form a Ltd. company.  Also, exposure to financial losses if the supplier goes out of business is greater than with a sole trader business.  What is their reasoning? 

p00hsticks

I suspect in some spheres of employment the IR35 rules may have something to do with it.... 

YBR

I work for a very large global transport business, but not in a commercial department so I don't know the details. There does seem to be a policy of vetting suppliers and we can't get everyone we want to approved. 

In a couple of instances it's about a company not having a long enough trading history such as when someone sets up a new company. We (in my team) might know the individual, their competence and history well but can't get them on the Corporate system through their new company immediately. I think there are other checks which I guess include liability insurance.

There may be corporate responsibility checks (ethics, compliance, modern slavery) which need documented supply chains and such like that make it onerous.

Mistral001

YBR said:

I work for a very large global transport business, but not in a commercial department so I don't know the details. There does seem to be a policy of vetting suppliers and we can't get everyone we want to approved. 

In a couple of instances it's about a company not having a long enough trading history such as when someone sets up a new company. We (in my team) might know the individual, their competence and history well but can't get them on the Corporate system through their new company immediately. I think there are other checks which I guess include liability insurance.

There may be corporate responsibility checks (ethics, compliance, modern slavery) which need documented supply chains and such like that make it onerous.

I see your point about trading history.  If the Ltd. company supplier has been in business say for three years, getting information on trading history would be quite easy as it is publically available, whereas the same information on a sole trader business is confidential and hence not easily available. 

I suspect though that corporate checks on suppliers regarding ethics etc, would be applied equally to sole trader business as to a Ltd. Co.  Paper trail and documentation etc.  would be same no matter what set up the business was.  Might be wrong though.

DullGreyGuy

p00hsticks said:

I suspect in some spheres of employment the IR35 rules may have something to do with it.... 

Its broader than just IR35, look at Uber with its self employed drivers which ultimately the courts decided were workers not self employed and so had employment rights like NMW and sick pay (IR35 just how pay works and liability for taxes).

Mistral001 said:
Why do these companies have this policy? It cannot be for doing due diligence on the company as Companies House does not check on details given when applying to form a Ltd. company.  Also, exposure to financial losses if the supplier goes out of business is greater than with a sole trader business.  What is their reasoning? 

It's not just if a supplier goes out of business, it can also be if the supplier goes rogue or fails to deliver on contractual terms. Arguably its easier to judge if an incorporated body has the funds to pay up if they botch a job than a sole trader because in exchange for limiting liability their records become public (hence the company behind this site went from Limited to Unlimited as the profits were getting embarrassing for a consumer champion) 

It can also be that the company has some form of insurance against counterparty default, whilst its more common for protection against clients default the insurance normally requires that counterparties pass a credit check which generally are setup for LTD/PLC (or other countries' equiv) than sole traders. Most sole traders dont have a DUNS number for example 

Mistral001

I suppose there are some sole traders who think they can easily make themselves "men of clay" if they fall down on the job, or run without enough capital, but those are the exceptions.  But i would argue that most deliver on time, have good credit histories with banks, and for those who have employees, are good employers. 

martindow

Wholesalers want to be sure that they are supplying a 'real' business who are likely to be repeat customers and not dealing with an individual wanting to make a one-off large purchase at a discount.  They often put quite onerous requirements on their web sites to try to enforce this.  

A limited company clearly determines this, but in practice they will usually accept other evidence of trading.

Grumpy_chap

DullGreyGuy said:

Arguably its easier to judge if an incorporated body has the funds to pay up if they botch a job than a sole trader because in exchange for limiting liability their records become public (hence the company behind this site went from Limited to Unlimited as the profits were getting embarrassing for a consumer champion) 

That does not match my understanding of Unlimited company.
Unlimited company is still an incorporated body and still has the same level of reporting and public domain accounts, but has no limitation to the liability that can be pursued.  In the event of business insolvency, the debts would not die with the business but the shareholders remain liable for unlimited amounts ( a bit like a Lloyds Name ).
One of the largest Unlimited company businesses is GSK - GlaxoSmithKline Unlimited

uknick

Grumpy_chap said:

DullGreyGuy said:

Arguably its easier to judge if an incorporated body has the funds to pay up if they botch a job than a sole trader because in exchange for limiting liability their records become public (hence the company behind this site went from Limited to Unlimited as the profits were getting embarrassing for a consumer champion) 

That does not match my understanding of Unlimited company.
Unlimited company is still an incorporated body and still has the same level of reporting and public domain accounts, but has no limitation to the liability that can be pursued.  In the event of business insolvency, the debts would not die with the business but the shareholders remain liable for unlimited amounts ( a bit like a Lloyds Name ).
One of the largest Unlimited company businesses is GSK - GlaxoSmithKline Unlimited

Have you got the company registration number for GSK unlimited?  I ask because I have shares in GSK and would hate to find out I am liable for all their debts above my shareholding.

k12479

uknick said:

Grumpy_chap said:

DullGreyGuy said:

Arguably its easier to judge if an incorporated body has the funds to pay up if they botch a job than a sole trader because in exchange for limiting liability their records become public (hence the company behind this site went from Limited to Unlimited as the profits were getting embarrassing for a consumer champion) 

That does not match my understanding of Unlimited company.
Unlimited company is still an incorporated body and still has the same level of reporting and public domain accounts, but has no limitation to the liability that can be pursued.  In the event of business insolvency, the debts would not die with the business but the shareholders remain liable for unlimited amounts ( a bit like a Lloyds Name ).
One of the largest Unlimited company businesses is GSK - GlaxoSmithKline Unlimited

Have you got the company registration number for GSK unlimited?  I ask because I have shares in GSK and would hate to find out I am liable for all their debts above my shareholding.

01047315

I was also intrigued by this. It's GlaxoSmithKline Services Unlimited and acts 'as the principal legal employing entity of the group', supplying employees and charging the appropriate business units at cost. So it seems your liability is still limited.

@Grumpy_chap do you know why they keep this structure? Something to do with ensuring employees get paid even if the employing entity doesn't cover its costs, perhaps?

Grumpy_chap

uknick said:

Have you got the company registration number for GSK unlimited?  I ask because I have shares in GSK and would hate to find out I am liable for all their debts above my shareholding.

01047315
https://find-and-update.company-information.service.gov.uk/company/01047315

I suspect your shares are in GSK PLC 03888792
https://find-and-update.company-information.service.gov.uk/company/03888792

k12479 said:

@Grumpy_chap do you know why they keep this structure? Something to do with ensuring employees get paid even if the employing entity doesn't cover its costs, perhaps?

I believe it is to do with the potential medical negligence claims that could follow from the products and activities of the company.
GSK Services Unlimited is basically the majority of the global operating business. 
Any claim against them can claim against the full assets of GSK Worldwide, which is a lot of assets. 
One way or another, this risk has to be insured and if that was all met through insurance, the premium would be prohibitive (even for such a large organisation).  Giving the assets of the business as potential collateral avoids that.
There are some Ltd companies within the group, but these are really the consumer healthcare and nutrition products where the potential for excessive claims is far lower.
Here are all the companies in the GSK Group:
https://www.gsk.com/media/7475/gsk-group-company-names-and-addresses.pdf

I fear we are drifting off topic area of "Small Biz Money Saving"