Contract in Personal name

Contract in personal name

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I have a client (A) who set up A Ltd in May this year in preparation for buying a franchise buisness from franchisor (B Ltd). Just before he incorporated and before he entered into the franchise agreement he entered into an additional contract with (C) who was an existing franchisee of B Ltd to purchase as a going concern the buisness, assets and trade of (C). The purchase consideration is £20k. This is the value of the order book he is buying as the end clients of C pay on an annual basis and the £18k is one years worth of income.  This agreement is a 3 way agreement between B Ltd and A and C. The agreement was made in As personal name not A Ltd as he had not incorporated at this stage and C also made the agreement in his personal name. 

A then enters into a normal franchise agreement as A Ltd with B Ltd.

I have asked whether there is an opportunity to novate the original contract from his personal name to the company name but B Ltds legal team have refused. (A) took no legal advice at the point of signature.

So the questions I have:

From a tax perspective what are the implcations of leaving this in his personal name - I am assuming that the profits from thsi business would be accounted for as a sole trader and taxed as such. However from a practical perspective I am not sure it will be easy to manage what will be two business entities when really this is one trade. I can see that ending up in an admin disaster managing two bank accounts etc

Are there any advantanges for A selling the contract to A Ltd from a tax perspective? I cannot see any restrictions in the contract preventing a sale  (although his lawyer would need to check) I am assuming A selling to A Ltd would give rise to CGT but this would be covered by his annual allowance. How would this transaction then be accounted for in A Ltd books? Are their any tax advantages of A Ltd carrying the asset?

Are there any other options i.e. could A licence the business to A Ltd?

Any help or alternative approaches would be welcome.

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By Comptable
30th Sep 2016 19:40

The problem with questions like this is that the scenario and transactions are too complicated to take in when set out in narrative form. If we were sitting in a meeting I would be drawing diagrams.
Can diagrams be done on here?

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By Manchester_man
01st Oct 2016 13:37

It would be a pretty straightforward incorporation of A's newly acquired sole-trader business into A Ltd.

There would be the usual market value / connected parties rules but as you say, any gain would probably be within the AE.

Consideration via DLA etc.

That is what I would do.

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