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Trading under a Limited Company and Risk?

  • Post #1
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  • First Post: Jul 30, 2016 10:14am Jul 30, 2016 10:14am
Hi all,

As you know, or at least should; you can in events lose more than what you've invested (gaps, huge moments like the CHF in 2015, etc). This worries me as I wouldn't want to get caught up in a situation where I owe thousands I cannot pay to a broker - thinking worst case here..

I was wondering however, if I was to trade through a limited company as a form of protection and the worst was to happen, is anyone aware of what would happen in terms of negative equity or money owed?

Thanks
check with your broker, most brokers can only make your balance down to $0 and can't be negative
Quoting flinx
thinking worst case here.. I was wondering however, if I was to trade through a limited company as a form of protection and the worst was to happen, is anyone aware of what would happen in terms of negative equity or money owed? Thanks
The basic idea of those legal structures is that it is not your money or your debt, it's that legal structures money/debt. A LTD basically is a completely separate legal entity. You are however responsible for managing it. So if the company is in debt which it is unable to pay for with its own money or assets you're obliged to file for insolvency (of that business). It's not complicated but it is still a bit too much to explain all in a forum. If you're serious about that (and other solutions are not appropriate for you) you should seek professional help and perhaps read a book on running a limited company.
Keep in mind that it also has a big impact on taxation. Spread betting is not possible anymore and it's not taxed as capital gains either, it's corporate tax and you also pay tax on paying money out to you, either in form of dividends once a year or as a monthly salary.

There are other ways to protect yourself by the way, such as putting your house or other very important assets in a trust. You could still go bankrupt yourself but it wouldn't matter that much because your house, stocks portfolio or so is in the name of that trust and you're just the beneficiary of it. But here again, you'll need professional help.
Quoting flinx
Hi all, As you know, or at least should; you can in events lose more than what you've invested (gaps, huge moments like the CHF in 2015, etc). This worries me as I wouldn't want to get caught up in a situation where I owe thousands I cannot pay to a broker - thinking worst case here.. I was wondering however, if I was to trade through a limited company as a form of protection and the worst was to happen, is anyone aware of what would happen in terms of negative equity or money owed? Thanks
Good advice from Aarontdang and JensG--- and on seeking professional advice.

Not really sure on the UK laws, but I believe they are somewhat similar to US. I have 18 Limited Liability Companies for businesses, real estate, and other holdings including several live trading Forex accounts. In the US, an LLC provides personal liability protection from creditors and also allows you to pass through your income (loss) directly to your personal tax returns as long as you are the 100% owner of the shares. No need to file a separate company tax return as our Revenue Dept considers a single member LLC a "disregarded entity" for tax purposes. So you get liability protection with the ease of accounting. A couple of disadvantages are the LLC paperwork and having to open a separate LLC bank account. Hope this two cents helped and of course seek the advice of a professional! Cheers!
There is no LLC in the UK and the Ltd is not a pass-through vehicle one could however setup a LLP - a limited liability partnership. The problem with that is it's a partnership so if you don't have a partner you'll either need to find or create one. By create one I mean you could setup a ltd and use that as your partner - profits will be shared according to an LLP agreement so that might be interesting regarding tax efficiency. Again, these are all options, but trying to utilize them without professional help is rather risky.

Regarding taking money out of a limited company:
https://www.gov.uk/running-a-limited...imited-company

The US LLC is a great vehicle by the way! I looked at it for real estate purposes, sadly there is no real equivalent in the UK.
Quoting JensG
There is no LLC in the UK and the Ltd is not a pass-through vehicle one could however setup a LLP - a limited liability partnership. The problem with that is it's a partnership so if you don't have a partner you'll either need to find or create one. By create one I mean you could setup a ltd and use that as your partner - profits will be shared according to an LLP agreement so that might be interesting regarding tax efficiency. Again, these are all options, but trying to utilize them without professional help is rather risky. Regarding taking money...
Ah Understood JensG! Well with our absolutely insane US elections coming up perhaps our LLCs will be disappearing soon and women will be ruling the world!! LOL!
Quoting JensG
{quote} The basic idea of those legal structures is that it is not your money or your debt, it's that legal structures money/debt. A LTD basically is a completely separate legal entity. You are however responsible for managing it. So if the company is in debt which it is unable to pay for with its own money or assets you're obliged to file for insolvency (of that business). It's not complicated but it is still a bit too much to explain all in a forum. If you're serious about that (and other solutions are not appropriate for you) you should seek...
So would I be correct in assuming that would protect me as an individual should I get caught in a large market moving event which was to somehow blow my account and enter me into negative equity?
Sorry for sounding pedantic but it is crucial to understand that.

Quoting flinx
{quote} So would I be correct in assuming that would protect me as an individual should I get caught in a large market moving event which was to somehow blow my account and enter me into negative equity?
YOU are not in negative equity at all, your company is and you're not liable for your companies debt.
So to answer your question in the most simplest form: Yes.

Those books may help you to further understand paperwork and tax implications and perhaps what to do if shit hits the fan https://www.amazon.co.uk/s/ref=nb_sb...mi%2Caps%2C914
Quoting JensG
Sorry for sounding pedantic but it is crucial to understand that. {quote} YOU are not in negative equity at all, your company is and you're not liable for your companies debt. So to answer your question in the most simplest form: Yes. Those books may help you to further understand paperwork and tax implications and perhaps what to do if shit hits the fan https://www.amazon.co.uk/s/ref=nb_sb...mi%2Caps%2C914

Thanks for the clarity. So basically I could think of it as a company I work for, if it enters debt in a worst case, it's the companies debt and not mine personally? As the owner however it would be my responsibility to file insolvency.

So if this worst case scenario happened, could I get into any 'trouble'? What happens to the money owed? Does it effect any of my records as a person?

Thanks very much
Quoting flinx
{quote} Thanks for the clarity. So basically I could think of it as a company I work for
That is exactly what it is. You work as the director of that company so you actually are employed.

Quoting flinx
{quote} if it enters debt in a worst case, it's the companies debt and not mine personally? As the owner however it would be my responsibility to file insolvency. So if this worst case scenario happened, could I get into any 'trouble'? What happens to the money owed? Does it effect any of my records as a person?
As long as you manage everything in accordance to the law you have not much to worry about - it won't become your debt (but it is not your profit either as long you don't take it out in either salary or dividends).

https://www.gov.uk/running-a-limited...sponsibilities

When it comes to your credit score though I'm not so sure anymore. The companies debt won't be the problem but you worked/managed a business that went into insolvency and that might have an impact but I'm not an expert on that topic.
Quoting JensG
{quote} That is exactly what it is. You work as the director of that company so you actually are employed. {quote} As long as you manage everything in accordance to the law you have not much to worry about - it won't become your debt (but it is not your profit either as long you don't take it out in either salary or dividends). https://www.gov.uk/running-a-limited...sponsibilities When it comes to your credit score though I'm not so sure anymore. The companies debt won't be the problem but you worked/managed a business...
Wonderful, thanks very much. I've purchased a book from Amazon which I'll have a read of and hopefully get a better understand of the basics. Afterwards, I'll probabily try find a specialist accountant/tax advisor with knowledge of forex for further help.
You're welcome.

Quoting flinx
{quote} I'll probabily try find a specialist accountant/tax advisor with knowledge of forex for further help.
http://www.accountantsfortraders.co.uk/ in Sevenoaks.
  • Post #13
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  • Last Post: Aug 2, 2016 2:55pm Aug 2, 2016 2:55pm
Quoting JensG
You're welcome. {quote} http://www.accountantsfortraders.co.uk/ in Sevenoaks.
Ah brilliant, thank you very much.
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