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Disadvantages of Ready Made Companies

 

Just as the one of the benefits of a ready made company can be its previous existence, the main disadvantage of an off-the-shelf company can also be the uncertainty surrounding its past.

When a uk limited company is transferred from one owner to another the only items of substance which change are the shareholders. The company's separate legal entity in law means that changes to the persons who own the company does not in any way affect the business' existence or its history.

Potential purchasers of a ready made company which has previously traded therefore need to know exactly what they are buying, that is, what the company has done in its past.

By purchasing the entity the shareholders are taking over all of the company's available assets including any cash, fixed assets, bank accounts and possible a VAT and PAYE registration.

Liabilities Pass with the Transfer of the Company

The purchasers are also accepting direct responsibility for all of the ready made company's liabilities and current and future debts. Liabilities are both those which are known at the time of purchase and those which may be unknown or undisclosed when the shares are transferred, but which may come to light in the future.

VAT and PAYE inspections by Revenue and Customs for example, occur periodically, typically every five years or so. During a five year interval, the company shareholders could have changed completely as a result of the off-the-shelf company being sold.

Should Revenue and Customs discover that there were errors in the company's accounting which resulted in an underpayment of tax, prima facie; it would be the current shareholders who would suffer as a result. The previous owners would not be faced with any of the bill even though the errors may have resulted wholly or partly throughout their tenure of the company.

 
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