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!!!
2006-10-23 02:49:38 · 5 answers · asked by Anonymous in Business & Finance ➔ Small Business
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.
2006-10-23 02:55:31 · answer #1 · answered by London Aussie 3 · 1⤊ 0⤋
It sounds wrong to me for a start. The position, as I understand it, is that she has lent you half the capital to start a business. Now surely you have not agreed to give her half the takings. Do you mean half the profits? A very different thing. And if that is so is it half the gross profit or nett profit again a different thing. Whatever the real situation your are either partners (she being a sleeping partner) or you have just borrowed the money and have to pay interest. If you have agreed to pay half the profits then she is a sleeping partner and you need a partnership contract. These sort of contracts are not difficult to draw up provided all the details are clear. I suggest, rather than find someone you have no real contact with you should see a local solicitor. Any lawyer can draw up a simple contract for you and believe me there is an excellent chance you will need it eventually
2006-10-23 03:01:36 · answer #2 · answered by Maid Angela 7 · 0⤊ 0⤋
if you want to trade as a sole trader, treat that half as a loan from a friend to you directly and then treat the whole amout put up as capital introduced by yourself. that way there is no need for a partner, no need to worry about the friend declaring it as they have simply loaned you money on a personal basis as a friend and all the assets etc.. that your business owns will belong to you along with 100% of the profit.
There is nothing to say you have to pay your friend back with interest either or even pay them back at all lol.
2006-10-26 04:59:37 · answer #3 · answered by Paul S 5 · 0⤊ 0⤋
forget the free gift buddy get in touch with the revenue immediately before
they do your audit give them the whole story up front tell them EVERYTHING
about this arrangement if they have the full picture they will help you if you are
straight with them declare all i know cos i been there and came close to losing everything due to a vindictive ***** dont let it happen to you you find
out who your friends are then good luck
2006-10-23 03:12:03 · answer #4 · answered by not a mused 3 · 0⤊ 0⤋
Don't let someone else's tax concerns put your business at risk.
State all money paid out and if your partner doesn't want to claim it as income that's his/her problem.
Tax evasion is a federal crime. Don't put yourself or your business at risk because your partner's afraid to pay the taxes that he/she owes.
2006-10-23 02:53:26 · answer #5 · answered by trigam41 4 · 0⤊ 0⤋