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The Economic, Legal and Taxation Effects of Disincorporation Paper number 01/06

By Gordon Channon, Ali Edwards and Simon James

Abstract

This project examined the reasons why small businesses did not disincorporate even when that seemed to be an appropriate course of action. One of the main obstacles identified was that the tax system, among other things, could impose a large capital gains tax charge in these circumstances. Three surveys were undertaken. The first asked Chartered Accountants to contact the researchers if they had knowledge and experience of any problems connected with disincorporation (the meaning of disincorporation is discussed in Section 1.1). The second asked the Chartered Accountants who had contacted the researchers to provide information about cases they had experienced where their clients had retained company status because disincorporation was problematic. The third survey asked small business owners for the reasons why they had chosen the business form in which they were operating, and the effects this choice had on the business. In addition to these surveys, other sources of research into the question of suitable legal forms for small businesses were identified. From the responses received, it was established that there were small companies in the UK which had decided not to disincorporate because of potential capital gains tax liability. Furthermore a profile was developed of the types of companies that might find themselves in that position. Information from small business owners provided reasons why decisions regarding incorporation and disincorporation had been made and whether the owners felt the decisions had been effective. Although that immediate problem has been greatly reduced by recent reforms, this study provides important evidence o

Year: 2011
OAI identifier: oai:CiteSeerX.psu:10.1.1.199.2701
Provided by: CiteSeerX
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