It is a sad fact of life that I am sometimes approached by company directors who have decided to close their companies as they have exhausted their options for continuing the business. It is a difficult decision for a business owner to make but I am often told that making the decision can in itself bring an element of relief, especially where the business owner has been struggling for weeks, months or even years to keep their business afloat. Continuing to struggle against the odds can have a serious impact on health and general well-being.
But what can make a difficult situation even more challenging is where a company was previously run as a sole trader business or through a partnership. If the conversion into a limited company wasn’t carried out correctly, it could cause unpaid suppliers of the business to make a claim against the individuals involved in the ‘old’ business. If creditors have continued to trade with the business in the belief that it was still a sole trader business or partnership, they may have a valid claim against the sole trader or partners of the old, pre-incorporation business. It they are always paid and there are no problems with the limited company, this oversight can go unnoticed. However, if creditors find they are likely to lose out, they will start searching through their records for details of who signed for credit accounts and credit agreements. This could lead to claims against the individuals personally.
Deciding whether to incorporate a business, in other words whether to become a limited company, is a complex one and you should consult your accountant or tax advisor about the tax implications. However, don’t forget to make sure that you have informed your suppliers of any change and get new credit agreements and credit accounts opened in the company’s name.
If you are concerned about your business finances, give us a call to find out how we can help.