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Changing from a sole trader to ltd co

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  • 21-07-2020 5:14pm
    #1
    Time
    Registered Users Posts: 993 ✭✭✭


    I've had a search around but can't find an answer, so hopefully here someone can help.

    When a sole trader starts trading as a limited company, what happens to all the existing stock etc.. that gets transferred over. Does that become a debt to the now director of the company or how is it managed?


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    #2
    y0ssar1an22
    Registered Users Posts: 17,043 ✭✭✭✭y0ssar1an22


    Time wrote: »
    I've had a search around but can't find an answer, so hopefully here someone can help.

    When a sole trader starts trading as a limited company, what happens to all the existing stock etc.. that gets transferred over. Does that become a debt to the now director of the company or how is it managed?

    it depends what you want to do.

    this is a disposal for CGT, so you need to be very careful all the boxes are ticked. You need to elect for S600 relief. Some taxes will be liable such as CGT on any goodwill, stamp duty. creation of a directors loan (debt) is also taken into account in the s600 calculation.

    ETA: there are also the cessation provisions for the sole trade to consider as well


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    #3
    Time
    Registered Users Posts: 993 ✭✭✭Time


    Thanks, from what i gather it's best to opt to take the value of assets etc.. (there's going to be no liabilities at all) as shares and then dispose of them as needed which still is subject to CGT. So really it seems you can only defer rather than eliminate CGT?


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    #4
    y0ssar1an22
    Registered Users Posts: 17,043 ✭✭✭✭y0ssar1an22


    Time wrote: »
    Thanks, from what i gather it's best to opt to take the value of assets etc.. (there's going to be no liabilities at all) as shares and then dispose of them as needed which still is subject to CGT. So really it seems you can only defer rather than eliminate CGT?

    yeah, its a deferral of CGT.

    the base price of the shares is reduced, thereby increasing potential future CGT if you subsequently dispose of the shares in the new company.

    as it is a connected party transaction, MV rules are used.


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