Is it possible to switch from Ltd company back to being a sole trader?

MobileSaver

kazzamunga said:

so it's only my partner that needs the profits of this company as income, not both of us – but it was my understanding that that can only be done by setting him up as a paid employee or generating dividends and sending these to both directors. He can't just transfer money out of the business account to himself, however he labels it in the accounts, right?

Right, so (at least one of) your problems is that you are both shareholders * (50/50?) entitled to (monthly?) dividends but ideally you only want one of you to receive dividends? 

One option would be for you to Waive Your Right To a Dividend before the dividend is paid so only your partner would receive the dividend. A caveat though is that as you will know dividends can only be paid out of profit so if the company made £1000 profit and you were both entitled to £500 each in dividends then your partner can still only receive a £500 dividend but the £500 that would have been paid to you instead stays within the company.

Another way around this is to have different Classes of shares, so your partner would have 50 Ordinary shares that pay a dividend while you have 50 of a different class of shares that don't pay a dividend or only pay a dividend once your partner has received a minimum dividend. So in this case if the company made £1000 profit then your partner could be paid £1000 dividend and you would be paid nothing.

There are actually three ways to get profit out of the business; employee pay, dividends and the Director's Loan Account. The latter is the one whereby yes your partner can just transfer money out of the business and then settle up at the end of the year as to how the Loan Account will be repaid (e.g. via a Final Dividend.) Your accountant can explain the pros and cons of this.

* For the avoidance of doubt, dividends are paid to shareholders (not directors) although of course a director can also be a shareholder and vice versa. I'm assuming this is a simple family business where you and your partner are both directors and are also equal shareholders?

pjs493

Have you considered setting up PAYE and having your partner as an employee who is paid a salary? That way you can get around drawing dividends and both having to receive funds.