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Basic Question

  • 25-01-2012 8:20am
    #1
    CapedCrusader
    Registered Users, Registered Users 2 Posts: 215 ✭✭


    Hi folks,

    Lets say I am running a sole trader business and decide to incorporate.

    I give €30k in stock to my company. The director's loan balance of the company then shows €30k owing to me.

    In my first year, my company makes €20k net profit and I draw this down from my director's loan balance.

    End Y1, directors' loan now shows €10k owing to me

    Some questions:
    1. I assume the full €20k profit is liable to corporation tax?
    2. What is the stamp duty liability on the transfer of ownership of the stock and whose liability is it?
    3. I am assuming that drawing down on director's loan is most tax efficient way to take this €20k profit from the business?

    Thanks in advance folks.


Comments

  • #2
    smcgiff
    Closed Accounts Posts: 5,943 ✭✭✭smcgiff


    CapedCrusader wrote: »
    I give €30k in stock to my company.

    How generous of you! :D

    Is this not a sale from your sole trader business?


  • #3
    CapedCrusader
    Registered Users, Registered Users 2 Posts: 215 ✭✭CapedCrusader


    Ok, putting it another way,

    What would the most efficient way of carrying out this change of ownership be considering that I own both the Sole Trader business and the company?


  • #4
    smeharg
    Registered Users, Registered Users 2 Posts: 300 ✭✭smeharg


    CapedCrusader wrote: »
    ...
    What would the most efficient way of carrying out this change of ownership be considering that I own both the Sole Trader business and the company?

    You need to take proper advice. There are many things to consider and it would be impossible to cover it all in a forum.


  • #5
    CapedCrusader
    Registered Users, Registered Users 2 Posts: 215 ✭✭CapedCrusader


    smeharg wrote: »
    You need to take proper advice. There are many things to consider and it would be impossible to cover it all in a forum.

    Of course, but an understanding of the factors involved would be useful.

    So take this simplified hypothetical example.

    Sole trader business ceases with €50k stock on hand

    Limited company takes up business. Turnover = €200k PA
    Net profit = €30k PA

    What would the most efficient way, in this case, be, to:

    1. Transfer assets (€50k worth of stock) to company
    2. Take €30k pa from the business.


  • #6
    smeharg
    Registered Users, Registered Users 2 Posts: 300 ✭✭smeharg


    Even your simplified example has more to it than meets the eye.

    There could be goodwill in the sole-trade (as indicated by the profit you state) which on transfer to the company could trigger a capital gain. There are reliefs available but you must ensure you comply with certain provisions to avail of those.

    There's also VAT to consider - again there's a relief for transferring a business, but there are conditions that must be met.

    Then there's stamp duty - there are reliefs but certain conditions must be met.

    These are some of the factors involved. You'll appreciate there is much more to consider than just the transfer of stock. To give a rundown of everything is far beyond the scope of this forum.


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