I have started a business ias a sole trader, someone else put half the money up, but hasnt declared it. When i do my accounting i am going to have her lot of money going into no where, & no proof for the tax man, I would be very grateful if someone could help me out by giving me a few hints & tips on preparing a loan agreement, or even doing one for me. I would have to put in that she needs 50% of the takings from now until foreseable future. so i have got something to show the tax man when he asks where the 50% is going????? A bit cheeky I know but if you do me one Ill send you a free gift basket!!!
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This is a tricky situation. Normally if one person contributes capital to a business they are considered a partner. Therefore you would no-longer be a sole trader, but rather one partner in a partnership. Even if the other person has no involvement in the management of the business, they can still be considered a silent partner. Be very careful with this. A partner can incur debts on behalf of the whole partnership - and this means you. In terms of tax, I would suggest that you prepare a partnership agreement. A pro forma partnership agreement should be available in any good commercial precedent book found in a law library. Alternatively, like you suggested, you could construct some sort of loan agreement explaining that the capital provided by this other person was a loan which is being paid back, but they have no equity in the business. Either way this scenario creates complex tax problems and you should see a tax professional - but definitely try to get some sort of agreement in writing.
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