Sole Trader or Ltd. company

Gerry T

Hi,
I'm currently working as a sole trader for the past 2 yrs, VAT registered. The business is low risk consultancy style work where I'm not really exposed to any risk. My issue is mid this yr I will be taking on work which involves supply and commissioning of goods, work will be done on construction site and other company premesis.
I presume I will need to get Public & Liability Insurance and Product Insurance, something I'm planning on doing next month. No need for professional Indemnity as I don't take design responisibilities, my work is more engineering than design.
The one thing I'm not sure on is should I change from being a Sole Trader to a Ltd. company, am I carrying far more risk as a Sole trader ?
As a Ltd. company is there much more "Admin" work to be done. Such as filing returns ?
As a Ltd. co. are there advantages by being a director, pension rights etc ?
If I do decide to change is that a brand new business or can my existing business be changed -- the reason being I have some trading history now and if people check for credit ratings, tax clearance certs etc they are there and all healthy
If you can see any other pitfalls please shout, any help is appreciated

goz83

For a small outfit like yours, I would see no benefit in going limited. You would essentially be creating a new entity, so the credit history is fresh. Filing is abit more work, but nothing excessive. These days, the directors are being made responsible, so there is still risk as a limted company. For example; the banks insist on persoanl liability to loans, rather than having the protection of a limited company.

Simply use a trading name, if you don't already.

pedronomix

Sounds to me like your risk profile is about to become much greater. As things stand, you effectively give a personal guarantee on all aspects of your business, all sole traders do! The insurance requirement will be the same either way, get proper cover. On the face of it, from the information provided, I would definitely advise going Ltd Co.

17larsson

I have a ltd company and I just got a business loan and had to personally guarantee it. I set up an account with two wholesalers and had to personally guarantee those as well

pedroeibar1

Interesting that the most worthwhile advice in three days is from the other Pedro who like me has been warned for rubbishing so-called “advice” posted by others.

OP, I would not readily accept your assertion that currently you are without risk. I’ll ignore that, different topic... As Pednx has said, your risk profile will change considerably. In the new role you will have credit risk (during prefabrication, buying in special materials, and after delivery/installation but before payment), you will have yourself and /or staff on the premises of others that could be harmed or cause harm. You will have product ‘on site’ so you need that covered against theft. Much of what you need would be covered by a ‘contractors all risks’ (CAR) policy. What happens if a widget you build (to their design) fails due to faulty fabrication? Will your supply contract make you liable for consequential loss? A good insurance broker will advise you on these.

Assuming that we are talking reasonable amounts of money, without question you should change to a Ltd. company. A sole trader is you and all your assets are on the line. (Unless you are in Texas, where you are allowed exclude your horse and a gun). As a sole trader you could lose your house should things go pear-shaped. The more you have the more you are likely to be sued and the more you have to lose.

Admin – yes, Ltd co returns have to be done annually, but for a small co these are not difficult or costly. Outsource it – it is a few hundred well spent and will allow you to concentrate on the important stuff.

Your existing business is ‘you’ so you need to inform your customers/suppliers that you are changing to a ltd co. Don’t let them find out, tell them why – explain that “thanks to your support over the last X years the business has grown to an extent that it now needs to be incorporated and from XYZ date it will be known as Joe Blogs ltd. It is a marketing opportunity. You will have some credit issues as inevitably some of the credit limits granted by suppliers will have been on the basis that they were supplying a sole trader. You need to look at the capital structure (issued/paid up) of the new co (remember new company law comes into force in June) and also have the tax certs changed. Being a director has responsibilities, also has an impact on pension issues, income/drawings, etc. All that stuff can be advised & done by your accountant who will give you the low-down.

Finally, congrats for bringing your business to the next stage and thank you for taking the trouble to pose your question coherently. Best of luck with the project.

Gerry T

Thanks all for your replies, on balance going Ltd. does seem to be the best choice. Yes risks in all business but Ltd does seem to offer more protection and while I'm sure there is a risk with loosing the family home even with a Ltd. co. this risk appears to me to be less.

I will look for some professional advise and will take the opportunity to turn it to my advantage with customers, thanks all for the replies.