MusicalGeorge started this topic @ 12:17 on 28/10/2005
I've been a sole trader for 4 years working in education, community and private settings to provide music and digital media related activities for clients. For the past 6 months I've been searching for an opportunity to either stop what I'm doing and do something else for work or take on premises and develop my business ambitions. It's not viable for me to continue as a sole trader - I make plenty of money, but my sanity is under threat so I need to change things around a bit and share my work.
Well in the past two months I've found a suitable premises and a couple of prospective partners as well. We've agreed verbally with the landlord and he's waiting for us to make a decision on the identity of the leaseholder before he issues us with a lease so the 3 of us need to decide whether to incorporate and form a company or to stay unicorporated as a partnership.
Financially things are risky for all of us personally. I'm putting money in to set the place up, one of the partners isn't (but has exceptional skills and some good potential contacts) and the other is also putting money in (though not as much as me) and our business plan indicates that the first 12 months cashflow will be quite tight - to the extent that we are anticipating being very very skint personally for a while. There are income streams that I have guaranteed during the first 12 months, but not enough to guarantee a comfortable cashflow if we are to be paid regular wages.
Incorporating looks like a minefield, what with salaries, minimum wage and NI not to mention the paperwork, but it seems the proper way to do things, especially where the lease is concerned and for wives and family's sake of mind because of liability.
I've had a bit of advice from a friend who is an accountant, but she says that the form of the business and the best way to organise the cashflow where wages and dividends are concerned could be complicated. She wants to help and says that it could be expensive for me to employ an accountant at this stage.
I need some help here - especially with regard to how we work out wages - which all the partners/stakeholders expect to be on the level of pocket money to begin with. In the next few days I would have liked to have made a decision about incorporation and registered everything so we can sort the lease out with the landlord and start to get the premises shipshape.
Having the premises ready for project work is key because there is not a suitable facility at home to consider working without a space where we can bring clients and make noise.
Any idea/comments would be very much appreciated.
RE: Sole trader to partnership/company advice
James Smith | 28/10/2005 01:23 PM
Your friend is quite correct about the company - to do it right will take time and money to sort out. It sounds like you have lots of things going on there with 3 partners, all contributing different things. Getting equality may be "interesting". You have also effectively also got a sale of your existing sole trade which is being purchased by the new company - which in itself is a big topic.
Doing it wrong will cost you even more time and money to put right 12 months down the track. And I would suggest that your wanting to have this all done and dusted within "a few days" is totally unrealistic. You need to allow several weeks to line all something of this complexity up properly as there are lots of different ways of doing it, all with differing tax and practical implications.
If you really can’t pay out to have everything arranged properly, then I would suggest you don’t touch a limited company. Keep as a partnership for now (with a detailed partnership agreement), and incorporate when you have the money for proper advice. The worst thing you can do right now is to "fudge" all the issues by trying to do it all yourself. In the long run it will probably be a lot more costly to do it this way around rather than taking advice upfront and getting things in line from day one, but I quite understand that if cash is tight you may not have the funds right now.
I hope that helps a little,
Regards,
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773
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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT
RE: RE: Sole trader to partnership/company advice
MusicalGeorge | 28/10/2005 01:42 PM
Thanks Elaine - I understand all that because I'm actually a worst case scenario person! (but not a negative one!)
RE: RE: Sole trader to partnership/company advice
elainec100 | 28/10/2005 02:19 PM
One thing I am getting a bit confused with - you do not have to pay yourselves wages if you set up a company. You would all be directors and could pay yourselves what you want and take some in dividends at the end of the year if things work out.
I had a company before and for 'tax reasons' took a small salary and the rest in dividends. James should be able to confirm that this is all above board.
Plus you need to sort out the partnetship agreement e.g. share of profits, selling your existing business etc. So I am not really seeing why setting up a company will be less hassle / cheaper (you can set a company up in a day for £50). I must be missing something.
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Elaine Clark
http://www.letsdev.com">href="http://www.letsdev.com">http://www.letsdev.com http://www.letssalvageit.com http://www.letsgetarefund.com http://www.letsdoaswap.com http://www.letsmeet4.com
RE: Sole trader to partnership/company advice
MusicalGeorge | 28/10/2005 01:41 PM
Thank you James - I've been feeling that this might be the correct answer I didn't want to hear!
Problem is cashflow really - significant start up costs and no significant guaranteed income mean we aren't sure what to do about wages so a partnership seems like the right way to do things to get us started - except I'm not too sure what to do about the identity of the leaseholder. Oh well...
Is Limited Liability partnership something to consider reading up on or is this not for our type of business?