Purchasing a sole trader business and...

[myebuss11]

Hi

We have formed a new limited company and intend to buy the business of a sole trader. The sole trader has no relationship with the new company and we are using the same trade name and intend to make the transfer as smooth as possible.

The problem is that there are still services which have not been invoiced and some which have been invoiced but payment not received. The total unpaid services are worth around £50000. Is this what they call "accounts receivable"? The sole trader requests an agreement where we will be following his unpaid services.

Although we will inform the customers about the ownership change, as asking them to make payments to different bank accounts may confuse them, we want to make an agreement between the sole trader and our company but we have concerns about taxation.

- Can we accept payments for his services based on his invoices and then transfer the amount received directly to him? How will the taxation on these payments be as the first point of payment will be the bank account of the company?
- Can we deduct an admin fee on the payments we transfer?
- Can we direct the payments to a different account from his old account has used before as a sole trader?
- Shall we include terms related to this agreement in the sales agreement or make a separate agreement for this?
- Or is there another solution to handle unpaid services of the previous owner (sole trader) which would not confuse customers?

Thanks very much

 

[jasonnoguchi]

Sole trader accounting in this case is very tricky.

His accounts receivables do not directly translate into the accounts receivables of the new formed firm. I would suggest putting a meeting together before the actual take over with the debtors and the sole trader to iron out all of such issues over mutual agreement before moving forward. As long as there is mutual agreement, everything is ok.

 

[newtobusiness]

hi myebuss11

sorry i cant help you with your query.
rather, i was wondering if you could advise me on this.

i have formed a limited liability company and am in the final stage of buying a business from a sole trader. however, when i went through the Purchase Agreement/Sales Contract drafted by my solicitor, i was shocked to see that my company name was not mentioned anywhere. it has me as the buyer of the business. i am the director of the company, but i was expecting to see the legal documents in the companies name, shouldnt the buyer of the business be my newly formed limited company, eg 'ABC LTD'?
does anyone know about how this works? am i okay to sign the document as a buyer? does this mean i have unlimited liabilty and i wont be trading as a limited liability? i have opened a business account and have applied for a merchant account on my limited company's name. does this invalidate my business account, if the sales agreement between me and the sole trader qoutes my name as the buyer?

please help!

 

[Rhodes100]

Services that have not been invoiced is called work in progress, and who gets the benefit of that is a matter of negotiation.

If you have to do 20% of the work before it is invoiced then an 80/20 split would be applicable.

If he has invoiced but not received the money then it is his money as he has done all the work. You will presumably get all the benefit of repeat sales with the same customer.

If this was a limited company you would be giving him the same amount in a "net current assets" adjustment.

He will have to pay the tax on his sole traders business profits, and any capital gains, you will pay corporation tax after incorporation of his business and transfer of ownership.

If you are incorporating a business then clearly you will need a new bank account as it is a completely different legal entity.

I would suggest that you get these issues codified in a contract of sale with solicitors.

To newtobusiness, I would suggest that you start a new thread rather than hijack another one.