Limit of liability for sole trader

Limit of liability for sole trader

Didn't find your answer?

A sole trader is running a cafe business, and also co-owns a domestic rental property which is being rented out at the moment.  This property is owned 50-50 with her boyfriend, and they both live in a second house owned fully in his name.  Other than helping her out in the cafe very occasionally as needed at busy times at weekends (serving, cleaning up etc), the boyfriend has no significant involvement in that business as he works full time himself elsewhere.

In this case what is the limit of the liability for the sole trader should the worst case scenario happen?  Are the liabilities of the sole trader limited to her own personal assets and half of the rental property?  Or would any liabilities extend on to the boyfriend (and therefore onto his own assets) as he is involved in the shared rental business?  If the latter are these restricted to the shared property or further, onto his own property?

Any thoughts or guidance would be much appreciated.

Replies (2)

Please login or register to join the discussion.

By johngroganjga
10th Feb 2014 13:18

Her liability is limited to her own assets.  But where a bankrupt's assets include assets held jointly with others inevitably the co-owners will become embroiled to an extent.

The real question is how do trustees in bankruptcy liquidate bankrupts' interests in jointly held properties for the benefit of creditors.  I don't do insolvency, but I am sure one of the friendly IP's on here will find time to explain how it all works.

Thanks (1)
avatar
By arcon5
11th Feb 2014 11:02

If in the case of bankruptcy and a joint asset the receiver has a few options a available.
Offer the bankrupts share to the other party.
Place a charge on the property for an amount not exceeding the bankrupts personal equity.
Force a sale - although with joint ownership this is much difficult, but being a business rather than a home for either party would make it easier. There has been cases though where they have successfully forced a sale where another party refused to buy the BR out. Equally many cases where forced sale wasn't appropriate.

In bankruptcy whoes name is on an asset isn't necessarily the end deal. You can have beneficial interest in a property in anothers name if you've contributed towards it. As far as creditors are concerned though, assets of hers may be available to them, nothing more without a court order

Thanks (1)