Change your business structure
Who to notify if you transfer your business to a new legal structure
If you notify the right people at the right time of any change in the legal structure of your business, the changeover from one entity to the other should be relatively easy.
Depending on your contracts with your customers, you may need their consent to transfer contracts to the new business entity. If you don't get their consent, and the contract requires it, this may constitute a breach of contract or give rise to certain rights, such as rights of termination.
Let them know who they now need to pay. You may need to serve notice on debtors if you change the way the business is structured. Advise customers of this as soon as possible.
Let your service providers and suppliers know of your change in your business' legal status and that they should invoice the new entity after the date of the change. Again, you may have to review your contracts with them.
Talk to your lenders about your planned changes. If you lease, hire, hire purchase, or license assets, eg company cars, you may be prohibited from transferring these assets without obtaining the consent of the third party.
If you change from an unincorporated to a limited liability structure - eg from a sole trader to a company or limited liability partnership - your bank will probably want you to open a different bank account eg many sole traders use their personal accounts for business purposes - if you are changing from being a sole trader to another legal structure your bank may insist on you opening a business bank account. The bank may also require personal guarantees for overdrafts or business loans.
When buying or selling all or part of a business, employers have certain information and consultation (I&C) responsibilities:
- Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), you must inform and consult with representatives of affected employees - eg employees who transfer to the new employer - about the sale. See responsibilities to employees if you buy or sell a business.
- If you have an I&C agreement in place, you must inform and consult employees or their representatives on - among other things - changes to the workforce. This means that you may have to inform and consult when planning to buy or sell all or part of a business. See inform and consult your employees.
Note that you do not have to inform and consult at the same time under both TUPE and your I&C agreement - you can choose instead to 'opt out' of the agreement and consult under TUPE only.
Review your agreement with your landlord. There may be implications of changing your lease to take account of the new legal entity.
If you are transferring assets from a partnership to a limited liability partnership (LLP), you need to apply for an exemption for stamp duty.
If you don't want to transfer titles, contracts or assets, you need to keep the previous business in existence. This may mean extra costs and extra legal obligations, eg if you change your business from a company to an LLP, but keep the company going, you will have to file accounts for both.
A solicitor or accountant can advise you on other obligations arising from changes in your business structure. See expert financial advice.
When changing the legal structure of your business, you should assign your insurance, licences, trade marks and patents to the new business entity and register documents with the appropriate authorities.