Hi Ruth,

If you've been trading for a number of years then I'd suggest you speak to an Accountant and get them to value your business. You may well have created goodwill in your business which, loosely, you can sell to the Limited company.

I've just done this with a bookkeeping client of mine and when the Accountant did this for him, he ended up with quite a bit of money.

hth

I've only been going since June, part time, so I wouldn't expect the business would have much value yet (part of the reason for going ltd now is because of plans we've got to grow, it seems to make sense to become limited first to simplify things). My profit for the current year will be very small, thanks to lots of start up expenses.

Thanks

I see what you mean, I should have given more details in my first post. This year is certainly well below personal allowance, next year probably too (and I haven't paid tax for several years).

Hi Ruth,

for a bit more information on LLP's.

http://www.book-keepers.org.uk/index.spark?aBID=106474&p=3&topicID=34364108

Personally I prefer nice simple limited companies but it's up to you not your accountant to decide which way you want your company to go (the company is the responsibility of the directors not the accountants. If you receive bad advice (I'm not saying that this is) it is you, not the accountant that is responsible!).

On the tax consideration front I'm not seeing the big tax planning excercise at all in this instance. You've just set up, done a few months trading and want to go Ltd. Why not just wait till April the 5th, have 2010/11 tax year as self employed then convert at year end. Seems to keep things simple.

Also, you are transferring personal assets into the company, not taking them out. The normal double entry there would be debit asset credit directors loan account.

One thing to remember though when transfering assets into the company is that you are not trying to make a profit. The assets should be transferred in at the amount that would be considered reasonable in an arms length transaction with a willing, unrelated third party.

It's best that you talk to your accountant Ruth espechially in relation to the item that Tony touched upon in valueing any goodwill in your business prior to incorporation. Personally I'm not feeling it from the original question but I don't know all of the facts.

Good luck with your venture,

kind regards,

Shaun.

Hi Elain,

nope, nothing wrong with the advice that you gave. Note that the sentence before the quote actually directs Ruth off to more info on LLP's as most people have no idea that anyone other that the large accountancy practices can adopt such legal form.

The other bit is true. despite responsibility mainly under the supply of goods and services act for advice given the ultimate responsibility for actions taken lies with the directors of the company as they acted upon the advice when it was witin their power to seek alternate points of view.

At the end of the day Ruth is a financial professional and as such she would be deemed even more than most clients to have knowledge of what she was getting into so in the event of advice that she acted upon not being right for her she would have little if any come back on those who gave such advice.

At the end of the day for open ended questions such as this (rather than what column does X go in type questions) the advice given on here should be regarded as no more than seeds with which to approach one's own accountant who has more knowledge of your personal circumstances.

Kind regards,

Shaun.

As I said, Supply of goods and servcices act.

However, imagine Joe Bloggs is given some advice that he acts upon. HMRC go after Joe who acted on advice in good faith. Joe is responsible to HMRC for the fines, interest, surcharges, etc. Not the advisor directly.

Joe then says to himself, hang on a minute it was my accountant that told me to do that. So they pay solicitors fee's and court costs for a case that could be lengthy with no clear view of winning that case and even if they do, no guarantee of costs being part of any settlement so victory could be a very Pyrrhic one!

We're talking aboput little companies here, not major corporations such as the banks that have in house legal departments working full time just for them and if they are not working then they are redundant.

Accountants do not give incorrect advice on purpose, they give the best advice that they can but this is one of those industries where there are often a dozen right ways of doing something and it is so easy for the right way advised to have not been the best way for the client.

I think that this very much ties in with the other thread in that there is some advice that can be given without knowing all of the facts and some that must be tempered with caution and alternatives.

In this case, as I stated, "I" prefer nice simple limited companies rather than LLP's. I pointed Ruth to more information and the general advice was for her to see her own accountant.

On the responsibility front I fully agree that we all have a moral and ethical duty of care to clients and our profession regardless of any other legal considerations.

Thanks both of you for your input, I'm sorry if my question has triggered a discussion that has led to anyone feeling offended in any way.

Shaun, thanks for this:

One thing to remember though when transfering assets into the company is that you are not trying to make a profit. The assets should be transferred in at the amount that would be considered reasonable in an arms length transaction with a willing, unrelated third party.

That's exactly what I was hoping to hear. I don't suppose you can point me in the direction of a relevant accounting standard by any chance, just because I like to know the detail??

I don't want to bore everyone with the ins and outs of my business, but at the moment we're looking at all sorts of options and it's because I'm well aware of the various tax (and other) implications that I want to clarify as much as I can in my own mind before deciding on the next step....having a director's loan could make a difference to my personal tax situation....but it is only one part of a bigger picture and it might have been more helpful for me to have clarified that I have an understanding of that when I started the thread. It's actually been really interesting for me, awakening old memories of calculating business worth 15 years ago when I was doing my ACIB exams (that's Chartered Institute of Bankers, not Institute of Certified Bookkeepers!).

The advice issue is another one I'm interested in as I also work in a counselling role for a charity and with that hat on, we would never advise, instead offering information and support, which may sound like the same thing but actually it's completely different, it's enabling and empowering and about allowing the other person to grow and develop. For me it is quite fundamental that I want to offer my bookkeeping customers a similar relationship - ie. an non advisory one! - but of course that is very much at odds with the traditional approch to accountancy and other financial advice.

Anyway, I digress, but thanks again for the comments.

Hi Ruth,

the best definition of fair value that I have to hand is from IAS 39. paragraph 9, page A875.

I appreciate that financial Instruments isn't really the place to be quoting from for this but fair value is a global definition rather than specific to this standard.

Fair value is the amount for which an asset could be exchanged, or a liability
settled, between knowledgeable, willing parties in an arms length transaction.

You need to be registered to use the IFRS website but it's free to sign up if you want to read any of the standards in more detail.

The UK GAAP definition of fair value measurement comes in FRS7, Fair Values in Acquisition Accounting. Unfortunately the ASB documents are photocopies in PDF format so for that one so you'll need to go to the FRC website (or access the standards via the ASB website) and pull up FRS7.

The definition of fair value is in paragraph 2 on page 6 but the whole document isn't too bad a read (as accounting standards go!).

Have fun and talk later,

Shaun.