Buying a sole trader

[mattrg]

Hi Folks,

Having received some excellent advice on here before regarding a staffing issue which I acted upon and therefore resolved, I thought I would pick your collective brains again for a slightly different matter.

We own a small hair salon, which we operate as a limited company.

We are looking to purchase one of our competitors which operates as a sole trader, move our business into their premises (one of the main reasons for the purchase is they are in a very desirable location with a very solid long term lease) and effectively merge the two businesses.

We would be retaining their staff and assets (it's very nicely set up already), moving our staff into their premises to create one much larger business. The intention would be to trade under our limited company.

My question is, what are the legalities around the following..

1. merging the sole trader into our limited company - do we just buy the assets and "good will" and effectively let the sole trader cease to exist?
2. Regarding the staff, presumably we give them a new contract for our company (happy to issue it under there current terms of employment) is it that simple or are there potential complications here?

Other than the above, it seems relatively simple but i've never purchased a business before having always set them up from scratch.

thanks in advance for any thoughts.

[Tyre Smoke]

Pretty much as you have said. You pay the ST for the 'goodwill' and any assets for a price. The ST ceases to exist.
The staff presumably get transferred in on the same pay and conditions, or you offer the same as your existing staff if the terms are better.

[mattrg]

Thanks tyre smoke.

I've just had an interesting update in so much as the other business is actually a limited company. There was an error in the sales listing

I presume this makes matters more complicated or is it the same scenario but we have the other company struck off once we've transferred everything accross?

[a1topdog]

I'd be getting the advice from my account in the first instance. I'd assume he would want to do some due diligence on the other companies books anyway to make sure all is in order.

[Tyre Smoke]

Good point. Assumed the OP had already done that.

You absorb the new company into yours and it ceases trading.

[mattrg]

Thanks both,

Due diligence is underway currently. It's a relatively simple business from a cash flow perspective so I'm working through the accounts vs bank statements currently along with meeting the landlord to ensure continuation of the lease and the staff etc

I'll have a discussion with our accountants today

[Eric Mc]

There are two ways to acquire a business that is operating as a limited company -

i) you buy the limitred company itself (i.e. you buy the shares of that company and consequently take over all its assets and liabilities etc

ii) you simply buy the trading/customer base of the company and leave the share ownership in the hands of the original shareholder who then proceeds to wind up/dissolve the now ceased company.

There are pros and cons in both approaches.

[Mr Overheads]

If you buy the limited company that is the tenant at the new premises, then surely the lease is not affected if you keep that company alive.

With 2 Limited Companies you've got a whole host of structural options that will have current and future tax and operational advantages/disadvantages

e.g. Create a NewCo holding company that buys both companies.
Create NewCo that buys Assets and liabilities etc of both Companies and then OldCo's are dissolved.
Merge the 2 companies into one or other

[garythesign]

Eric Mc said:

There are two ways to acquire a business that is operating as a limited company -

i) you buy the limitred company itself (i.e. you buy the shares of that company and consequently take over all its assets and liabilities etc

ii) you simply buy the trading/customer base of the company and leave the share ownership in the hands of the original shareholder who then proceeds to wind up/dissolve the now ceased company.

There are pros and cons in both approaches.

In this case though, the OP is trading as a limited company. The business to be purchased is a sole trader

[sinbaddio]

In terms of taking on the existing staff, you need to comply with TUPE (transfer of undertakings, protection of employment). So that essentially the staff are contractually at least as well of as they were (not just in terms of pay but any other benefits also). Also their start date would be the start date with the organisation you are taking over (may affect holiday entitlements, any future redundancy calcs etc).

https://www.gov.uk/transfers-takeovers

[Europa1]

garythesign said:

In this case though, the OP is trading as a limited company. The business to be purchased is a sole trader

Try reading the thread.

[Deesee]

As above buying the sole trader is quite straight forward.

Ensure you check off the vat returns and card receipts to make sure nothing has been inflated for sale purposes, as as it’s a sole trader the filled accounts are not public record, and ensure any finance against equipment and or f&f is to be paid down.

Ensure your accountant if fully aware of how your buying (debt/own cash/company cash etc), as it could be beneficial to operate a new co, or not.

Key to this in my opinion is the lease, have it throughly checked over to ensure it’s transferable to a new “lessee”, whom the lessor is and if it’s already been sub let etc.. as the head lease (if their is one) could specify additional charges/fees.

Hope it all goes well