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Alex J.
Alex J., Solicitor
Category: Bankruptcy Law
Satisfied Customers: 3653
Experience:  Bankruptcy, liquidations, administrations, pre pack sales, re use of company names and director duties and offences.
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Hello. I have a CAP Account with Christians Against Poverty,

Resolved Question:

Hello. I have a CAP Account with Christians Against Poverty, which (as I understand it) is analogous to a Debt Management Plan. I am considering arranging to form a private limited company with my father and partner as shareholders, and me as the sole director. I would be planning to pay myself nil salary and, of course, any dividends would be received by the shareholders. I would be transferring various assets to the company at fair market price and taking the transfer price as a credit to my director's loan account. My questions are:
a) is there any problem with the plan above?
b) are there any circumstances in which the shareholders could incur a liability?
c) what would happen if I entered personal insolvency?
d) would I have to tell the company's customers about my personal financial situation?
The company would be operating domestic cleaning and window cleaning services, and later also bicycle repair.
Also, I wanted to ask what would be the best option to resolve my personal financial situation. I have unsecured debts of around £9k - £10k. There are no priority or secured debts. My only income is student finance and a very small amount of interest (less than £1 per annum). CAP have suggested a DRO, but I understand that can bring restrictions on doing business. What would be the best way forward? I am currently making token payments to my creditors.
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  Alex J. replied 2 years ago.
Hi
Thank you for your question and welcome.
My name is ***** ***** I will assist you. I am a company law solicitor.
How much do you owe your creditors?
Will you have the assets valued independently before transferring them to the company?
Kind regards
AJ
Customer: replied 2 years ago.

Hi AJ, thanks for coming back to me.

I owe my creditors around £9k - £10k.

Regarding independent valuation - I wasn't planning to, do you think I should?

Regards

Hugh

Expert:  Alex J. replied 2 years ago.
Hi
Thank you.
To answer your questions:
A) a limited company is a distinct legal entity you are not liable for its debts and it will not be liable for your personal debts;
B) Being a shareholder means your liability is limited to the paid up share capital of your shares - shareholders are not on the face of it liable for the company's debts personally;
C) You would not have to tell the company's customers about your personal affairs. Your perosnal affairs may be relevant if you were asked to give a personal guarantee for the company liabilites.
The only issue I can think is if your sell your personal assets to the company for use in the business your creditors are likely to want the proceeds of the sale. If your creditors think you have disposed at an undervalue they may seek to challenge the sale - therefore a valuation may be sensible to verify that you are not transferring them to the company to avoid your creditors.
I look forward to hearing from you.
Kind regards
AJ
Customer: replied 2 years ago.

AJ: thank you. Finally, are there are circumstances in which the shareholders (my father and partner) would incur a liability beyond the capital they had put in, financial or otherwise? What if I was the shareholder, sole or otherwise? I meant to convey this question in my original text but on reading again, I can see it may not have been clear.

Expert:  Alex J. replied 2 years ago.
Hi
Thank you.
No there is no way they can incur additional liability beyond the capital they put in unless they also act as company directors or sign a personal guarantee.
If you are a shareholder as well and go insolvent then your trustee in bankruptcy will gain control of the shares. Ideally to protect your other shareholders you should sign a shareholders agreement to allow them the right to buy your shares in the event of your insolvency.
Kind regards
AJ
Alex J. and other Bankruptcy Law Specialists are ready to help you
Customer: replied 2 years ago.

Thanks a lot, AJ. Hugh

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