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bumblebeeandboy

"buying" A Sole Trader Business - Help Needed

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Bit of a long story but really need some help on what i could potentially getting myself into.

I work for a very small internet based company on a self employed basis. The company has overexpanded and can no longer run on it's current structure and needs to go back small whereby it will be profitable again, the sole trader hasn't had much to do with the business for the last few years other than being the name above the door so to speak. The company owes me £16000 from unpaid commission and £12000 to another lady who is employed by the business, the business can not pay me this and neither can the sole trader (other newer business (nothing to do with this one) in trouble too.

I want to take on the business myself as i know as a sole trader without employees it will bring me a healthy income, nothing major but as a mum working from home it will be fine. Basically what has been proposed by the sole trader is if i pay off the other employees wages due £(12000) the company website, brand name, customer base and stock is mine. Fair enough i think, the stock in the business roughly equals the money i'm owed so effectively i'm buying a business with a well known name it's in market for £12000. This i'm happy with and project to earn back that £12000 within a year.

However...

the company currently rents a unit on an industrial estate and is 1 year into a 3 year lease. This unit is what has ruined the business as the rent is eating all the profits that would be my commission. The sole trader is telling the landlord today that she is ceasing to trade as a sole trader from the end of June and will be leaving. In theory from the day after i will become that company as the sole trader and i'm running it from my home. The company in the unit next to ours wants to move into our unit so we're hopeful the landlord will be happy to let our lease lapse as the other company will expand into it. However if the landlord isn't happy with this and wants to sue the sole trader for the remaining 2 years rent who will this be? The original sole trader or me as person who now operates under that website name?

We're not talking big business here but one mum company.

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You need to obtain legal advice on the deal as it is fraught with dangers if not done properly.

I agree,

I wouldn't take a lease on without doing so, you wouldn't be liable until you signed a legally binding lease though

Is there any way you can leave the premises? Do it from home? Have a friend with space? or shop around for space in another companies unit?

I run a business and know full well the premises issues

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Can you just buy the assets you want? In the circumstances they're essentially worthless (their value is eaten up by debt), so you pay a nominal sum - say £1 - to take on the assets and agreed debts (money owed to you and your co-worker). Exclude the business unit from what you take on.

That leaves your ex-boss with a problem (she's still liable), but it sounds like she's got problems anyway, and you're at least simplifying them!

[edit to add] Then consider incorporating as a limited company, to limit your problem if a comparable misfortune should hit you sometime in future.

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Sounds to me like you'd be better off forming a limited company and do the deal through that.

As long as you don't agree to an assignment of the lease you should be ok. The lease is in the old sole traders name, you'd need to formally agree to take it on yourself.

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I agree,

I wouldn't take a lease on without doing so, you wouldn't be liable until you signed a legally binding lease though

Is there any way you can leave the premises? Do it from home? Have a friend with space? or shop around for space in another companies unit?

I run a business and know full well the premises issues

No way i'm taking on the lease and made it clear i'd never be interested in the business if the lease/unit was anything to do with it. For a start it's 60 miles away from where i live and i will work around the children at home. I will run my business from a spare bedroom which is ample space. I will register at companies house as a new sole trader under the same name (or add UK) at the end if that will help differentiate it. To customers the business will seem the same (i do it all now virtually anyway) and the website address is the same.

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Can you just buy the assets you want? In the circumstances they're essentially worthless (their value is eaten up by debt), so you pay a nominal sum - say £1 - to take on the assets and agreed debts (money owed to you and your co-worker). Exclude the business unit from what you take on.

That leaves your ex-boss with a problem (she's still liable), but it sounds like she's got problems anyway, and you're at least simplifying them!

[edit to add] Then consider incorporating as a limited company, to limit your problem if a comparable misfortune should hit you sometime in future.

[/quote.

I could do this i think. I i want everything EXCEPT the lease and i'm happy to pay the other persons debts but not the unit's lease. If this leaves the boss with the debt of the unit lease i'm happy with that and she's aware this might happen, she's so stressed she is looking forward to not having this business to worry about and will reduce the amount she's owing to people by mine and the other employees debt.

I did consider the ltd company route but it seems so much more complicated and i'll then have the NI bill from employing me. The business will be profitable if run from home and i'm much more financially savvy than she is (she's made awful decisions and got bored with the business hence employing others she can't afford).

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No way i'm taking on the lease and made it clear i'd never be interested in the business if the lease/unit was anything to do with it. For a start it's 60 miles away from where i live and i will work around the children at home. I will run my business from a spare bedroom which is ample space. I will register at companies house as a new sole trader under the same name (or add UK) at the end if that will help differentiate it. To customers the business will seem the same (i do it all now virtually anyway) and the website address is the same.

Great, the only other issues would be if some of the customer base relies on that location but it sounds like you have thought about that anyway

Having a Ltd company will be an advantage if you are exposed to risk but there is employers NI to pay then

It is difficult to say more without having details but if they are in a jam then they'll be keen to do a deal too.

I bought some still useful business equipment the other day at 5% of its original value, don't be afraid to haggle

Good luck

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Great, the only other issues would be if some of the customer base relies on that location but it sounds like you have thought about that anyway

Having a Ltd company will be an advantage if you are exposed to risk but there is employers NI to pay then

It is difficult to say more without having details but if they are in a jam then they'll be keen to do a deal too.

I bought some still useful business equipment the other day at 5% of its original value, don't be afraid to haggle

Good luck

Customer base wouldn't be affected as it's all online sales only. In fact it will be improved as currently customers can't collect from the industrial unit (other woman who works there and is owed the £12k does this job as a second one now due to getting hardly any money from this business now) but customers local to me could collect from my home or i'd be happy to drop it into my local ones. Currently if they order through me the order is processed by the main unit and i don't hold stock here.

They are desperate for me to take it on, as no one wants to see the business go down the pan (10 years it's been trading). From my negotiations with them i can have anything i want for the £12k.

They have all the old copies of accounts etc. Would i need to keep these as it will be my "new" business?

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Guest X-QUORK

The original owner would've signed the lease in her own name since sole trader/partnerships can't hide behind company indemnity AFAIK. No doubt you'll be speaking to a business lawyer anyway as part of your due diligence.

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The original owner would've signed the lease in her own name since sole trader/partnerships can't hide behind company indemnity AFAIK. No doubt you'll be speaking to a business lawyer anyway as part of your due diligence.

[/quotTe

Finding one.

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Customer base wouldn't be affected as it's all online sales only. In fact it will be improved as currently customers can't collect from the industrial unit (other woman who works there and is owed the £12k does this job as a second one now due to getting hardly any money from this business now) but customers local to me could collect from my home or i'd be happy to drop it into my local ones. Currently if they order through me the order is processed by the main unit and i don't hold stock here.

They are desperate for me to take it on, as no one wants to see the business go down the pan (10 years it's been trading). From my negotiations with them i can have anything i want for the £12k.

They have all the old copies of accounts etc. Would i need to keep these as it will be my "new" business?

I would make a 'purchase' of the stock to you or your company. This means you do not have any other implications connected with the previous companies trading. Transfer of the website is easy and can be done without any other real issues

Be careful with the valuation on your books of this purchase because if it is for £1 then your books will show a larger taxable profit than reality once they are sold

If you are owed £12K this is taxable so bear in mind if you are 'paid' this and then 'pay' it back there are tax issues too. You are best having a chat with an accountant about how to resolve that

Also check for creditors, although you are not obliged to pay them, they might refuse to trade with you until they are paid anything owed by the previous company. It can happen and won't help your cause.

When you say they are 'desperate' and will give you anything, I'd ask for £2,000 :)

I would say have the stock delivered but you might find something useful while you are there picking it up. A copy of the old accounts will be useful for customer contacts and size of accounts

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Guest X-QUORK

You are best having a chat with an accountant about how to resolve that

Maybe Ken could do it on the cheap?

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Bit of a long story but really need some help on what i could potentially getting myself into.

I work for a very small internet based company on a self employed basis. The company has overexpanded and can no longer run on it's current structure and needs to go back small whereby it will be profitable again, the sole trader hasn't had much to do with the business for the last few years other than being the name above the door so to speak. The company owes me £16000 from unpaid commission and £12000 to another lady who is employed by the business, the business can not pay me this and neither can the sole trader (other newer business (nothing to do with this one) in trouble too.

I want to take on the business myself as i know as a sole trader without employees it will bring me a healthy income, nothing major but as a mum working from home it will be fine. Basically what has been proposed by the sole trader is if i pay off the other employees wages due £(12000) the company website, brand name, customer base and stock is mine. Fair enough i think, the stock in the business roughly equals the money i'm owed so effectively i'm buying a business with a well known name it's in market for £12000. This i'm happy with and project to earn back that £12000 within a year.

However...

the company currently rents a unit on an industrial estate and is 1 year into a 3 year lease. This unit is what has ruined the business as the rent is eating all the profits that would be my commission. The sole trader is telling the landlord today that she is ceasing to trade as a sole trader from the end of June and will be leaving. In theory from the day after i will become that company as the sole trader and i'm running it from my home. The company in the unit next to ours wants to move into our unit so we're hopeful the landlord will be happy to let our lease lapse as the other company will expand into it. However if the landlord isn't happy with this and wants to sue the sole trader for the remaining 2 years rent who will this be? The original sole trader or me as person who now operates under that website name?

We're not talking big business here but one mum company.

The lease is in the name of the individual, not in the name of the business, as the business is not a legal entity. If it was a limited company, it would be a different matter. There is no way that the landlord and the tenant could agree a lease that would bind you to anything.

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Quork is right. Sole trader has no limited liability. The liability is all his.

If he goes bankrupt then creditors can claim on his assets. But otherwise I don't see a problem.

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What would you be `buying` - sounds like thin air!

If you believe in `karma` - (sorry you can kiss that £16,000 goodbye) then there is an obvious solution - walk away, and take the business with you, remember a sole traders debts are personal and can not be walked away from.

He is not going to spend £300 an hour suing you with money he hasn`t got!

However, if your in the situation where you`ve be strung along to the tune of 16k, it sounds like you really will not last too long out there in the `real` world.

I may be wrong in your case, but getting the work is one thing, being paid for it is something completely different, hence your current situation.

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Customer base wouldn't be affected as it's all online sales only. In fact it will be improved as currently customers can't collect from the industrial unit (other woman who works there and is owed the £12k does this job as a second one now due to getting hardly any money from this business now) but customers local to me could collect from my home or i'd be happy to drop it into my local ones. Currently if they order through me the order is processed by the main unit and i don't hold stock here.

They are desperate for me to take it on, as no one wants to see the business go down the pan (10 years it's been trading). From my negotiations with them i can have anything i want for the £12k.

They have all the old copies of accounts etc. Would i need to keep these as it will be my "new" business?

No. What you should do is agree to buy the stock and the website name for £12k. She uses that money to pay off her liabilities, but what she does with the money is not your concern. You start an entirely new business using the same website address, and the stock you bought off her.

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Sounds to me like you'd be better off forming a limited company and do the deal through that.

As long as you don't agree to an assignment of the lease you should be ok. The lease is in the old sole traders name, you'd need to formally agree to take it on yourself.

Be wary of doing this. As a Ltd company you will have to have your accounts done by an accountant, which could well be costly and eat into a smallish profit.

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Be wary of doing this. As a Ltd company you will have to have your accounts done by an accountant, which could well be costly and eat into a smallish profit.

I agree with that, I am currently a Director of Ltd Company. apart from the limited liability aspect which is not always the case,(for instance if you have an overdraft at the bank it is likely your manager will want personal security) I don't find many advantages, in fact the NI really is a disadvantage

I would avoid a LTD company if your risks are minimal, my last company was a partnership which I run from a spreadsheet which was much better

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I wouldnt touch the organisation with a barge pole.

sounds like the owner is on the verge of bakruptcy.

If you take the employees, they are going to be a huge cost, and dont forget TUPE.

the premises will be the other big cost.

If you really want it, you want the name, the website and the goodwill.

And as it has already failed, what makes you think it wont fail with you at the helm? LTD is the way to go and get legal advice.

TUPE may finish it for you....this relates to the current employess Ts and Cs, which no doubt you will want to change.

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What would you be `buying` - sounds like thin air!

If you believe in `karma` - (sorry you can kiss that £16,000 goodbye) then there is an obvious solution - walk away, and take the business with you, remember a sole traders debts are personal and can not be walked away from.

He is not going to spend £300 an hour suing you with money he hasn`t got!

However, if your in the situation where you`ve be strung along to the tune of 16k, it sounds like you really will not last too long out there in the `real` world.

I may be wrong in your case, but getting the work is one thing, being paid for it is something completely different, hence your current situation.

I've not been strung along and always knew how much it was adding up to but could cope without the money (not a materialistic family, live on hubbys income, no debts, str etc etc), i love what i do and have been able to share my knowledge with customers who needed the advice (customers had no idea i wasn't going to see my commission) and it's given me something to do while at home with young kids so kept my brain alive. If the company folds and i don't take it on i know i won't see that money but what you've never had you can't miss!

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No. What you should do is agree to buy the stock and the website name for £12k. She uses that money to pay off her liabilities, but what she does with the money is not your concern. You start an entirely new business using the same website address, and the stock you bought off her.

That's just what i want to do, thank you.

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I've not been strung along and always knew how much it was adding up to but could cope without the money (not a materialistic family, live on hubbys income, no debts, str etc etc), i love what i do and have been able to share my knowledge with customers who needed the advice (customers had no idea i wasn't going to see my commission) and it's given me something to do while at home with young kids so kept my brain alive. If the company folds and i don't take it on i know i won't see that money but what you've never had you can't miss!

It seems as if you are getting stock and a website that is worth your trouble/work and that you have made your decision and good luck to you

Like I said earlier, without knowing more there is little more I can say but it sounds like you know a lot about it already.

Just be careful how you take on the stock, there will be advantages and disadvantages associated with that Tax-wise

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I've not been strung along and always knew how much it was adding up to but could cope without the money (not a materialistic family, live on hubby's income, no debts, str etc etc), i love what i do and have been able to share my knowledge with customers who needed the advice (customers had no idea i wasn't going to see my commission) and it's given me something to do while at home with young kids so kept my brain alive. If the company folds and i don't take it on i know i won't see that money but what you've never had you can't miss!

ermmm...yes, you like working for nothing?, suggest you work in a charity shop if you truly want to be altruistic

in the real world there is no hubby`s income

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I wouldnt touch the organisation with a barge pole.

sounds like the owner is on the verge of bakruptcy.

If you take the employees, they are going to be a huge cost, and dont forget TUPE.

the premises will be the other big cost.

If you really want it, you want the name, the website and the goodwill.

And as it has already failed, what makes you think it wont fail with you at the helm? LTD is the way to go and get legal advice.

TUPE may finish it for you....this relates to the current employess Ts and Cs, which no doubt you will want to change.

The owner's not good with money at all and has great ideas but no commercial sense. I'm no CEO but i do have a retail business background although i've been out of "management" since the kids came along. There is only one other employee and she wants to leave (has other full time job and been doing this in her spare time) but can't afford to go without her £12k she's owed (personal friend of the owner). There wouldn't be any TUPE.

The business has failed due to the owner not being commercially savvy. It used to run a small but healthy profit however she got bored doing it herself and employed the friend above to run it for her for a generous salary (initially) and stoped taking any money from the business herself. As long as it didn't cost her anything she was happy as kept her friend in work. Then decided to get an industrial unit instead of running from home and then it all went downhill, business couldn't afford friends salary+rental unit = friend no pay but rent being paid. If i take away the rental unit and not have any employees from the business i will do the work and earn the small income. It will also enable me to keep my brain active doing something i love, while still being here to look after the children/school holidays etc.

I'll make sure it's clear it's just the website and name.

I knew i'd find sensible advice on HPC.

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