Sole trader incorporating - do you use a solicitor?

Sole trader incorporating - do you use a...

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When a sole trader or partnership is incorporating, do you always use a solicitor to draft an agreement to transfer or sell the trade to the new company?

If not, is there a good source of reasonably priced (or free?!) standard contracts for this?

Thank you
Sarah

Replies (9)

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By Malcolm Veall
15th Jun 2009 14:32

They won't take advice
All posters make valid points ... but... telling clients they need to use a solicitor is always taken by small clients as, at most, an option - more lilely an evil that they will only take up if their arm is severly twisted. Sarah's comment in her first reply is indicative - we always tell partnership clients to have a partnership agreement; they rarely have one.

In the cases I have seen where transfer of trade agreements have been drawn up by solicitors, before I have been involved, they have been a nightmare. The wording is taken from standard precedents that refer to "base cost" a. for assets that at are not chargeable to CGT and b. for assets that may be best transferred at agreed value, eg P&M with unused WDVs. Unfortunately having a solicitor do anything beyond the basic precedents often makes the legal costs wildly disproportionate to the scale of the business.

Transfer of title to Real Property may well not be effected at all without a formal conveyance, and sale of intangibles, eg Goodwill, really needs evidencing.

If it is a sole proprietarship with no real property and minimal kit use of solicitors may, in the real world, be optional. Documentation of the approtionment of values on the transfer is not optional.

A positive suggestion to end these ramblings:
- Use the CG34 procedure to give certainty on the value of Goodwill that HMRC accept has been transferred.

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By User deleted
15th Jun 2009 09:15

So would it be ok if
I wrote and advised them that they should have a legal agreement in place with regard to the transfer of the trade from the partnership to the company. I would advise them on what the content should include and say that there are cheap templates available on the internet but they should consider whether to use one of those or seek the advice of a solicitor. Not being legally qualified, I am not in a position to advise which they should do but there should be a legal agreement in place.

Does everyone think that would cover me?

Thanks for all your input so far.

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Mark Lee headshot 2023
By Mark Lee
14th Jun 2009 11:00

Good advice below - I like Naomi's points especially
On occasions like this I am reminded of this para in the Guide to Professional Conduct for those in tax (and by implication all those giving tax advice or otherwise involved in day to day tax compliance):

The main accounting and tax bodies jointly published the Guide which includes the following:

“Members will from time to time find themselves having to advise on matters which require specialist knowledge. In such circumstances they should be careful not to go beyond their own level of competence and, if necessary, should seek help from a specialist in the field”.

Sarah needs to decide whether she has the necessary experience, confidence and therefore competence to advise on this without involving a lawyer.

The replies below support my view that legal transactions often necessitate the involvement of a legal adviser. This is because few accountants (qualified or otherwise) and tax advisers are competent to draft or advise on generic legal documents.

Mark Lee
Tax Advice Network

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By User deleted
14th Jun 2009 00:00

Thanks for your comments
There is no property and no assets to speak of.

Bank account, debtors and creditors but debtors and creditors would be satisfied by old partnership bank account so it would be sale of the trade only.

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By naomi2000
12th Jun 2009 17:45

When to use solicitors
I really would be very concerned about any attempt to change the business structure without taking competent legal advice.

If your client is worried about costs, I would approach a firm which has a sizeable commercial department and a well stocked precedent library preferably based outside the M25 . There isn't as much corporate finance work around at present and rates are a bit more negotiable than usual. There are plenty of solid middle tier firms out there who are keen to keep the associates and trainees busy.

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David Winch
By David Winch
12th Jun 2009 15:27

Conveyancing

I think you are on thin ice (legally and professionally) if you are charging for a service which includes changing the ownership of property (i.e. land or buildings) if you are not a solicitor or licensed conveyancer.

The danger is that (i) it might not be legal for you to charge for this and (ii) you might not actually achieve what you intend.

David

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By snopes
12th Jun 2009 14:26

Don't...

...try do this yourself for a partnership incorporation.
Get a solicitor to draw up both the sale and purchase agreement and the shareholders' agreement.

Might be a bit expensive for the clients but will save you sleepless nights!

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By snopes
12th Jun 2009 14:19

Agreed
You don't necessarily need to use a solicitor for a straightforward sole trader incorporation as long as you are sufficiently experienced to draw up the required sale and purchase agreement yourself (including dealing with the premises if there are any).

But if you are not confident you can do this yourself, use a solicitor this time then you will know how to do it next time.

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By User deleted
12th Jun 2009 14:16

It is a partnership
without a partnership agreement (much as I have always advised them to do one).

The partnership is incorporating into a limited company. The ltd company has been set up with both partners as directors and 50% shareholders. The view is to transfer trade to the company on 31 July due to timeframe in setting up company bank account etc.

Presumably there is a need for an agreement to sell/transfer the trade of the partnership to the limited company?

You mention a shareholders' agreement, do you know of any templates or examples of this?

Thanks for your input so far.

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