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Beneficial owner identity protection

Running an unincorpoated business at the same time as being dormant incorporated

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In order to protect the trading name unincorporated company registers as an incorporated company filing under Section 480 of the Companies Act 2006 as dormant. The legal operators or beneficial owners of the two businesses occupy the same premises at the same service address, e.g. 'Trading Name' "TN" and 'Trading Name Ltd' "TNL" Unit 2, Business Park, Somewhere. As there is a legal separation between the two, the assets of TN would apparently be beyond the reach of anyone suffering a distress caused by its beneficial owners because they appear to be locked up by TNL. Supplier contracts with TN do not mention the beneficial owners by name they use the trading name and the supplier knows they are unincorporated but is unaware that the assets of TN may be protected by TNL; business is undertaken largely on a cash basis. TN is a food business and the identity of the Legal Operators is protected by Local Authority Policy and more controversially by Data Protection Law (GDPR).

The beneficial owners of TN are relying on their identities being withheld what are the wider implications of structuring a business in this way especially if the identities become known.

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18th Mar 2019 17:42

There is a risk that the scheme does not achieve what is intended, because it relies on people 'apparently' behaving dishonestly...

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to WhichTyler
19th Mar 2019 16:59

Should ethics be tagged?

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to WhichTyler
20th Mar 2019 15:25

Apparently is relevant. If a practice advises a business to buy digestive biscuits instead of chocolate ones for meetings they are apparently advising the business to avoid tax. Tax avoidance is quite legal tax evasion is exactly the opposite and HMRC strives to turn avoidance into evasion whenever it can. Its just how the cookie crumbles.

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to baseline
21st Mar 2019 08:28

Quote:

Apparently is relevant. If a practice advises a business to buy digestive biscuits instead of chocolate ones for meetings they are apparently advising the business to avoid tax.

Rubbish.

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By DJKL
18th Mar 2019 17:43

If assets are not owned by TN Limited (and as it is dormant they evidently are not, it evidently did not buy the assets nor therefore owns the assets) then they are assets of T and N as individuals presumably trading as TN Partnership, accordingly they are on the line for anything done by T and N trading as TN Partnership.

One would also need to carefully consider the idea of "holding out "as TN Partnership or TN Limited

By the way I presume by "unicorporated company", in line 1 you actually mean something that is not a company, namely a partnership, perhaps you could confirm?

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18th Mar 2019 19:39

Why do you think the assets of TN are protected by having a dormant company called TNL?

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to Wanderer
20th Mar 2019 15:30

The assets of TN are worth a million pounds.

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to baseline
21st Mar 2019 11:16

Okay but why do you think the assets of TN are protected by having a dormant company called TNL?

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to Wanderer
21st Mar 2019 13:36

By asking the question it demonstrates uncertainty. TN is unlikely to have creditors because it is cash based. However if the assets TN came under a legal threat it could assert that TN assets are protected by TNL. The matter would have to be resolved by a court and a magistrate could refer it to a higher court. Make your case citing applicable law as to why TN assets are not proteced by TNL.

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to baseline
21st Mar 2019 13:52

Okay but why do you think the assets of TN are protected by having a dormant company called TNL?

Or, put another way, who owns these assets ?

Legally, like.

Here's your case - Salomon v Salomon.

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to lionofludesch
21st Mar 2019 15:17

One of the beneficial owners of TN (a person with significant control) is recorded with the Land Registry as owning the assets and is an executive shareholder within TNL.

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to baseline
21st Mar 2019 15:34

So these valuable assets are owned by a partner in the unincorporated business ? So no protection from creditors at all.

Struggling to understand the problem here. It seems to be based on misconceptions.

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to lionofludesch
22nd Mar 2019 12:26

Quote:

So these valuable assets are owned by a partner in the unincorporated business ? So no protection from creditors at all. Struggling to understand the problem here. It seems to be based on misconceptions.

Fair comment! An examination of TNL filings shows that when it was incorporated the service address was given as the family home but later on this was changed to the business address owned by TN. One could say that this was done to disconnect TN from TNL however, it could be argued that it was done to protect the asset of greater value.

Looking at dormant company appointments most are exactly the same year on year. In the TNL class there is a lot of movement with appointments. In a related case a dormant company VTNL saw a filing where a tax planner a dormant company TPL was appointed as a non exec director to VTNL. It was not established whether VTN or TP where sole traders. What's going on here?

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19th Mar 2019 06:59

You have raised a question of law in an accounting forum. The forum in which to raise it has walls, doors and "Solicitors" above the entrance.

It might be a good idea to find a firm that owns dormant "Solicitors Ltd".

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to Tax Dragon
20th Mar 2019 15:29

Quote:

You have raised a question of law in an accounting forum. The forum in which to raise it has walls, doors and "Solicitors" above the entrance.

It might be a good idea to find a firm that owns dormant "Solicitors Ltd".

This is a good point. The issues arising are more of a problem for Company Secretaries than accountants. TN is using a book keeper and TML just files a copy of last years dormant accounts changing only the date. No involment or oversight by an accountant.
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By GW
19th Mar 2019 10:03

You should probably refer to Companies Act 2006 section 1200 onwards then talk to a solicitor as it sounds as though the rules may have been breached.

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to GW
19th Mar 2019 17:04

TML is dormant so disclosure does not apply?

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By Bobbo
to baseline
20th Mar 2019 13:56

First line of Section 1200:

"(1)This Chapter applies to an individual or partnership carrying on business in the United Kingdom under a business name."

I.e. TN (unincorporated) rather than TNL

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to Bobbo
20th Mar 2019 15:17

TNL is filing under Section 480, Dormant so there is no requirement for disclosure under Section 1200 this is not to say that there shouldn't be one. The position of TNL trading would different but it would depend on the Chartered Account being aware that TN exists and even if that was known would a disclosure statement under Section 1200 appear in the accounts submitted to Companies House. Its quite acceptable for a trading director of an incorporation to be a sole trader just as long as HMRC is aware of both. Remember the identity of the beneficial owners of TN are hidden by the Local Authority and discovery would would serve a civil legal purpose.

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to Bobbo
21st Mar 2019 10:50

Thanks for making the distinction

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19th Mar 2019 13:24

Its amazing the lengths people will go to not take out some pigging business insurance.

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to ireallyshouldknowthisbut
20th Mar 2019 15:35

Does TN have Employers (Compulsory) Insurance or Public Liability Insurance? An accountant would know but there isn't one just a book keeper.

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19th Mar 2019 16:48

To clear up some points: there are two shareholders in TNL, however the identity of the Legal Operators of TN are protected by Local Authority Privacy Policy. Submitting a Freedom of Information request to find out who the beneficial owners are sees the food licence document returned with their names redacted. The way this business has been setup straddles the law, accounting and data protection, an accounting professional would not necessarily be equipped to deal with all issues. TN uses a book keeper not a Chartered Accountant and the business is not subject to an audit or professional oversight.
Why is it thought that the assets of TN are protected by TNL?
TNL was registered at the start of the Banking Crisis in 2008 its assets are worth over 1 million. TN started very small and according to its website it has over a hundred employees, it supplies department stores and cash and carries across the UK and exports into Europe as well as supplying wholesale and retail outlets.
The important question is why TN has not filed TNL under Companies Act 2006 Section 477 as a micro business as no audit would be required. HMRC are aware of TN under self assessment but is not aware of TNL. As TNL is dormant no liability arises.
The suppliers to TN are largely incorporated and their Company Secretaries give scrutiny to the T&C but the trading name is used and the beneficial owners are not named.

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to baseline
19th Mar 2019 17:11

I'm really not sure you should be telling us all this.

Also, what is your question?

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to Tax Dragon
20th Mar 2019 11:22

Quote:

I'm really not sure you should be telling us all this.

Also, what is your question?


Indeed! It's because I don't like it, and you are right it could be seen as encourageable. It flies in the face of the principle of Limited Liability being quite medieval in nature. It all hinges on whether TNL is protecting the assets of TN and it raises more questions than answers. Why do we need the Companies Act 2006 when TN can set itself up in this way? The directors of trading incorporations are in a straight jacket whilst the directors of TNL are as free as a bird and can quite legally say to their suppliers or indeed anyone "I'm a director of TN" and give the impression they are something which they are not. The question is an open one on all of the issues raised perhaps the most important being that it bypasses the accounting profession who as a result are blissfully unaware of what is going on. The profession feeds into the process of creating remedial law.
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to baseline
19th Mar 2019 17:22

You don't need to FoI them; if you are entering a contract with them just ask them for an invoice...

https://www.gov.uk/invoicing-and-taking-payment-from-customers/invoices-...

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to WhichTyler
20th Mar 2019 11:27

Quote:

You don't need to FoI them; if you are entering a contract with them just ask them for an invoice...

https://www.gov.uk/invoicing-and-taking-payment-from-customers/invoices-...

The invoice need only give the trading name similarly supplier agreements with TN only state the trading name not the names of the beneficial owners.
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By Bobbo
to baseline
20th Mar 2019 13:51

The invoice need only give the trading name similarly supplier agreements with TN only state the trading name not the names of the beneficial owners.[/quote]

Are you sure?

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to Bobbo
20th Mar 2019 15:35

Every decent contract starts with the names of the parties in sufficient detial to make i claer qho you are actually contracting with. If a customer or supplier came to me and said 'we are Jones Brothers' I would want to confirm if that is Jones Brothers Ltd and put it in the contract. Same if I was an employee, I would want to know who I am employed by.

If I hadn't checked, and it went wrong, and it was big enough to matter, the courts might say there was a deliberate misrepresentation going on. Either way it looks like TN is trying to pull a fast one, so steer clear...

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to WhichTyler
20th Mar 2019 15:58

Yes and no and exactly, its all a matter of trust. One problem here is that a trading incorporation has of necessity to leave the annual audit to an accounting practice. Directors never really get an appreciation of what goes on or what is required and this applies to Company Secretaries. Indeed the supplier sales director may even be the Company Secretary "CS". Diligently CS checks for credit history and in this case cannot find any because TN is cash based. Next, CS goes to Companies House to see if TNL exists as a company. CS sees the company is registered and active but does not have the awareness to check how TNL is filing. If and when CS became aware that TML was dormant alarm bells would ring and TN as a customer would be most likey be dropped. It all depends how much cash is coming in to the supplier business.

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to Bobbo
20th Mar 2019 15:41

Yes! The formality is driven by VAT law. TN is cash based so lots of business documentation is invisible. They only see incoming invoices as suppliers are paid in cash.

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to baseline
20th Mar 2019 22:30

Stil not clear what your question is.

Why not tell us the name of TNL so we can avoid them...

Alternatively dob them in to one of their suppliers or customers? Do you have a grievance with them?

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to WhichTyler
21st Mar 2019 07:43

Presumably that would be illegal.

OP, a question for you: why have you been approached to act? When you were approached, was there no briefing on the issues you have raised?

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to Tax Dragon
21st Mar 2019 11:22

"Why have you been approached to act?" Necessity. The issue of whether the assets of TN are protected by TNL is not supported by case law. Companies House Beta site does not provide a filter for dormant companies. Why should it the companies are dormant. Anecdotal evidence shows there are over 300,000 dormant companies if TN and TNL exist then there will be others. TN is a case study.

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to WhichTyler
21st Mar 2019 11:24

The issue is not one of grievance so much as a need to obtain clarity and responses have been helpful. Thank you. The issue of perceived innappropriate data protection will shortly be considered by the Information Commissioners Office. The argument being made is the identity of legal operators or beneficial owners is transparent for incorporations (CA 2006 s 1200) but is not being implemented properly with un-incorporations such as sole traders and partnerships.

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