If the company enters into a ‘substantial property transaction’ with a director of the company (or someone connected to a director such as a member of a director’s family) then:
As the old sole trader is likely to be a director of the new company this could apply in the context of a sole trader to limited company business transfer.
A transaction is a ‘substantial’ one if it exceeds:
If the value of the sole trader business being purchased by the company is more than £100,000 then the shareholders of the company should formally approve the purchase of the business.
If the value of the business is £5000 or less then there is no need.
Practically any value over £5000 is likely to be more than 10% of the company’s asset value as it is usually a start up company formed specifically for the purpose of buying the sole trader's business and the company is therefore unlikely to have any real value prior to acquiring the sole trader's business.
The company’s occupation of any leased premises let to the sole trader should be formalised and the existing lease transferred or a new lease created and the consent of the landlord will usually be necessary.
Any sole trader borrowing and particularly any security over the assets of the sole trader in support of that borrowing will need to be dealt with. It is likely the lender’s consent to the transfer to the company of any assets subject to that security or perhaps a refinancing of the business in the ownership of the company will be necessary.
If the business is one which requires a licence of some kind from any regulatory or professional body then it is likely the company will have to apply for its own licence to continue to be able to operate the business.
Although no consent is necessary from employees, the employees of the business will usually transfer and become employees of the company. There are employee consultation requirements and notice of the transfer should be given to employees.
Where a seller is registered for VAT purposes and if the business is continuing in the same way as before the transfer then no VAT may be payable on transfer if the limited company is registered for VAT purposes and has been accepted for voluntary regulations.
The transfer of a business from a sole trader to a limited company may be subject to Stamp Duty Land Tax both on the transfer of any lease and the assignment of goodwill. It is recommended that you contact your tax advisor prior to completion.
