"incorporating" a sole tradership currently showing a loss

bubbles · Postby **bubbles** » Mon Jun 21, 2004 5:02 am

tradership been going for a few years but in the last year shows a loss due to unpaid creditors.

is it possible to incorporate the business and what should be done with the creditors. IR have suggested that they should be passed across given the connection.

This concerns me given that i understood that he would be personally liable for such debts.

In addition will the negative retained earnings prevent him from getting paid a dividend out of current earnings.

I think not but confirmation would be useful.

tia

geoff

Huw Williams · Postby **Huw Williams** » Tue Jun 22, 2004 10:12 am

One important thing to remember with incorporation is that you (the sole trader) are stopping trading and someone different (the company) is starting up. So your trading history cannot affect the current earnings of the company.

On the other question of unpaid creditors, do you mean "bad debts?" Amounts which are simply unpaid should not affect your profits; it is only amounts which you do not think are ever going to be paid (ie bad debts) which will affect the profit.

As to whether they should go over to the company, my understanding is that you would have to draw an agreement to transfer a debt and it would attract stamp duty; so it is more normal for debts to stay with the previous sole trader.

On the other hand if you do mean "creditors" which is the term accountants use to describe amounts you owe to your suppliers and the like, I do not understand this part of the question at all.

Huw Williams
217 Musters Road
West Bridgford
Nottingham
NG2 7DT

0115 914 6846

enquiries@huwwilliams.co.uk

bubbles · Postby **bubbles** » Tue Jun 22, 2004 11:59 am

tks hugh.

i had been confused by a comment a tax inspector made over the phone to the effect that, with connected entities (ST > Ltd Co.), creditors whom i owe money to, should be carried across as opening balances on incorporation thus affecting the company balance sheet.

she had now come back & said this isn't so, in writing, so they are effectively left for the person formerly known as the sole trader to worry about.

Geoff