Sole Trader - Advice on Personal Liability

[fluffyslippers]

Hi,

I run a small business as a sole trader. I have weighed up my options and I've decided not to go limited for the timebeing due to my small turnover, don't employ anyone, manage my books myself etc...

I sell home accessories and gifts online and have been doing so for 3 years. I do not have any business debts to worry about.

What I need some advice about is, in the event that I was sued (for instance) how protected would my property be? My husband and I own a house with a mortgage in both our names and were wondering if we changed the deeds and mortgage so it was just in his name would it then be out of reach in this circumstance? We have a daughter and it's important that I know our home is protected without having to go limited with all the associated complications with that.

I do have insurance and I realise this event is very unlikely, but wanted to see what the situation would be.

Thanks,
Alison

 

[Geoff T]

Hi,

The short answer to your question would be to sign over everything to your husband. If - as an unlimited sole trader - you get into financial trouble all of your disposable assets, personal as well as business, are up for grabs! Have you heard of the saying "everything but the shirt on your back"?

If you don't want to "bet the farm" (as they say) on the business - and you are that worried about it - then that's the way forward. Having said that, don't forget that if your husband owns the property, as you are both "jointly and severably liable" then even then creditors may still be able to "go after" your share of the property.

The only way to truly protect your house would be to go LTD, but if you do, a lot of suppliers want director's Personal Guarantees before they'll take you on, so you'd still be betting the farm anyhow!

Best way to protect yourselves? Build up cash reserves (if possible), and use those reserves to fund any business growth/expansion/major expense.

Also on the +ve (!) setting up as LTD is not that expensive, and if you're used to doing your own books, then the accounting changes won't be too bad!

Hope this helps,

Regards
Geoff

 

[fluffyslippers]

Hi Geoff,

That's helpful, thank you. Think we are going to sign all over to my husband anyway at least that's a start... Will probably end up going limited eventually, but in the meantime I've weighed up pros and cons and the additional admin/accounting etc... fees don't make it worth it with my small turnover.
I'm not worried about debt only the unlikely event that someone sues me (I do have public and product liability insurance) and I end up having to find a lot of cash...

Thanks again for confirming my thoughts,
Alison

 

[CertaxBexley]

If you were declared bankrupt, whether for business or personal debts, then the fact that deeds etc had been changed to your partners name would not necessarily help, as the court could rule that change unlawful / invalid.
Its also unlikely that your mortgage Company would allow such change.
If your goods are not of a type imported from eg the Far East that could fall foul of Trading Standards, eg electrical items that burst into flames, causing a house to burn down, then I wouldn't think you had much to concern yourself about

 

[fluffyslippers]

Ok thanks for that too - I don't import from Far East, clocks from Australia and USA, some melamine plates and then handmade decorative items such as cushions, lampshades (flameproof), pictures etc... Nothing that could burst into flames, cause damage or injury.
I'm just a paranoid android!

 

[Geoff T]

If you were declared bankrupt, whether for business or personal debts, then the fact that deeds etc had been changed to your partners name would not necessarily help, as the court could rule that change unlawful / invalid.

Hi Alison,

You're most welcome!

The other thing was based on the size of the business, are the insurances just a "belt 'n' braces" thing, or are you trading that much to warrant it?

The other thing about being LTD is the financial (tax), and if you're paying for insurances, then you'd be close to it being worth your while in my book!

ps - thanks Certax for the confirm - never hurts to have verification!

Regards
Geoff

 

[GRDCredit]

If you were declared bankrupt, whether for business or personal debts, then the fact that deeds etc had been changed to your partners name would not necessarily help, as the court could rule that change unlawful / invalid.

Would that not depend on how long after the transfer of the deeds the bankruptcy happened?

 

[Geoff T]

Agreed, it would... the next question for your overtime (!) is obvious...

any idea on time frames?!?

 

[CertaxBexley]

Would that not depend on how long after the transfer of the deeds the bankruptcy happened?

Possibly, but many intangibles remain

 

[Geoff T]

Possibly, but many intangibles remain

I love "intangibles"...they make the whole thing fun! Know what you mean btw!

 

[elaine@cheapaccounting]

If you are really worried about this then a limited company should be considered.

In this climate whilst one does not start out to have debts etc you can't be too sure of what happens.

And it need not cost at much as you think!

What price for peace of mind?

 

[JamesCartwright]

Setting up a limited company can be easy and cheap. I can't tell you what to do, but if you're worried then it may be an idea to do some research into limited companies.

Here are some useful links:
Companies House
£25 UK Limited Company Formations
Business Link - Limited Companies
Limited Company Business Guide

James.