This article considers the differences between a company and a sole trader debtor.
The term ‘company’ is often mistakenly used to describe any business, irrespective of the legal entity of it. Despite it being crucial to a contract, there are occasions where a party does not know the legal entity of who they have contracted with.
Company – a company is a specific legal entity which has its own legal identity and is registered with the Government’s Companies House – it can be either a LTD (private limited company) or PLC (public limited company). A company has limited liability, this means that the directors (or owners) will not be responsible for the company’s debts.
Sole Trader – a sole trader is an individual who trades under a different name, usually a name that reflects the type of business that they conduct. A sole trader’s business is not a separate legal entity to the individual, and the individual is liable for all the business’s debts. Often, a sole trader will refer to his business with just the business name, which can be mistaken by others to be a limited company.
To make an example, a fictious creditor (ABC Limited) has contracted with another fictious business called ‘Robin’s Potatoes’. ABC Limited has seen numerous vans driving around with this name on and there is a legitimate website where ABC Limited can order goods online – there is no reason to doubt the integrity of the business. As time goes on, Robin’s Potatoes fails to make payment of the ABC Limited’s invoices.
ABC Limited decides to sue Robin’s Potatoes, assuming that it is a limited company and naively adds the letters Ltd onto the debtor’s name – Robin’s Potatoes Ltd. No response is received and a CCJ is registered against Robin’s Potatoes Ltd; as payment is not forthcoming, ABC Limited instructs a High Court Enforcement Officer (HCEO). The HCEO arrives at Robin’s Potatoes’ trading address and talks to the owner, Robin Smith. Robin Smith tells the HCEO that Robin’s Potatoes is not a limited company, and in fact he is a sole trader – Mr Robin Smith T/A Robin’s Potatoes. After providing evidence of the same to the HCEO, the HCEO has to withdraw as there is no Robin’s Potatoes Ltd to enforce against.
Unsurprisingly, a chain of events like the above is not uncommon and it can lead to a situation where a creditor does not know the full legal entity of the party they’ve contracted with. Often too, legal action has been taken against an incorrect entity, at the expense of the creditor. It is vital therefore that as a creditor, you are certain who your contract is with.
If you are unsure of the party you have contracted with, then a few internet searches will help. Often, if a business is a company, then their website or terms and conditions will have the full company name/number – a bit of detective work might be needed however.
The above is not intended as an exhaustive list of entity types and should be used as a starting point only. The matter can be complicated further as companies can also trade under other names, for example ABC Limited T/A Jon’s Plumbing. There are also various other entities, such as partnerships and charities. If you have a debt to collect but are unsure of the correct entity, then speak to us at Debt-Claims Solicitors.