A limited company is classed as its own legal entity; this means it is responsible for any liabilities it accrues, and likewise, it is the legal owner of all its assets. In real terms this means that company directors cannot use company assets – including cash at bank – as though they belonged to the director personally. Any money extracted from the business must be done through the appropriate channels such as via a salary or dividend payment.
The limited company structure means your business is a separate entity in law, and unlike sole trader businesses, its assets belong to the company rather than you personally. This clear separation means that, in most instances, you are only liable for the amount of money you have invested in the company.
In contrast, sole traders face unlimited liability if their business becomes insolvent. There is no legal separation between the business and its owner with regard to assets, which places their home at risk if the business declines.
Business assets are purchased primarily for use in the business, and can be broken down into various categories and subcategories. Initially, they are identified as either tangible or intangible, but what does this mean?
Tangible business assets are physical assets and include property, equipment, vehicles, and machinery – they are assets you can see and touch
Intangible assets include, but are not limited to, goodwill, intellectual property, brand reputation, and business databases – they are assets that you cannot see or touch
Business assets can be further subdivided into those that convert quickly into cash - typically within 12 months – and these are called current assets. Fixed assets are those that are not easily converted into cash.
Current assets include cash, short-term investments, inventory, deposit accounts
Fixed assets include long-term investments, equipment, property, land, and plant
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Do any of these business assets belong to you personally if you are a company director?
Company shareholders own the business, but not the assets held within it. If you are the only shareholder, therefore, you do not own your company’s assets – they are owned by the company because it is a separate entity.
If you purchase assets for your company with personal funds, which is often the case when a new business is set up, you have to transfer ownership to the company and account for this in your books. Essentially, you are investing your own money in the business and the company then owes you this sum.
What about transferring personal assets you already own?
When you start a business, it is also common to transfer personally-owned assets into the company for use by the business. When doing so, you need to determine what the current market value is for each asset, taking into account its age, condition, and other factors.
Assets need to be itemised on an invoice prior to transferring the invoice total from your company bank account to your personal account. The business’ books should be updated accordingly, and if you have the original receipts it is advisable to attach them to the invoice as supporting evidence in the event that they are needed later.
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What happens to business assets if you close your company?
If you close down a limited company that is solvent, via Members’ Voluntary Liquidation (MVL) or dissolution, and there are assets remaining in the business once creditors have been paid, they are converted into cash for the benefit of shareholders.
If the company is not liquidated through the formal MVL process, but is dissolved by the directors, it needs to dispose of all assets prior to making the application for dissolution. If this does not happen, the assets can become property of the Crown – known as ‘bona vacantia.’
Although there is a clear line drawn regarding the ownership of business assets where a limited company is concerned, there are other elements you may need to consider. The tax implications are just one if you are closing down your business and thinking about purchasing any of the assets yourself.
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If you would like more information on the ownership of business assets, how to account for them in your books, and where you stand in legal terms if you are transferring asset ownership, our experts at Real Business Rescue can help.
We will provide tailored advice and guidance, and ensure you understand your legal position as a director. Please contact one of the team to arrange a free same-day consultation – we operate an extensive network of offices around the country so you are never far away from professional assistance.
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