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So there’s a business or a property out there that you want to buy. Why not keep it simple and buy the company that owns the business?

The advantage is that you get the assessed loss, if there is one, to set off against future profits. You might also pick up a shareholder’s loan account that will enable you to draw tax free money out of the company rather than drawing a salary. Don’t be tempted!

The risk that you will later find some skeletons in the cupboard far outweigh the above benefits. For example, the company may have signed surety on a property owned by the shareholder. If he/she defaults on the bond, even in 10 years’ time, the company will be (no, not may be, will be) sued by the bank along with the person that sold you the shares. That could mean the end of your company, your business, your livelihood. And don’t think that the usual Warranty and Indemnity clause in the agreement is going to help. If the seller is broke, then they’re broke and their indemnity is worth zip.

The recommended approach is to buy the business from the company as a going concern. These purchases always include the assets necessary for the business to continue as a going concern (for example the machinery, the vehicles, the property), but never the liabilities. If the selling company is VAT registered, it will have to charge VAT on the sale, so your company will need to be VAT registered as well, not just to be able to claim the VAT back, but because the sale of a going concern is zero rated for VAT provided that the business is earning income at the time of change of ownership and that the contract is correctly worded. If the asset necessary to continue the business is commercial property, then you will pay VAT (at zero percent) instead of Transfer Duty, provided both parties are VAT registered.

It is for these kind of deals that we sell new shelf companies that are already registered for VAT (click on the link).

Need help with your Investments?

Contact us today or set up a free meeting with our CEO, Derek Springett, to discuss your options. We have been offering expert financial advice and business services since 1971. You can also visit our online store to see our list of financial services.