In the Beginning
If you are considering starting your own business, then there are several things that you should give some careful thought to.
- You should check that you can legally go about starting your own business in the UK.
- Write a business plan
- Decide on your legal structure
- Choose a business name and address
- Register with HM Revenue and Customs
- Where necessary register with Companies House
In this fact sheet we will be looking at which business structure best suits you.
By far the easiest way to start a business, however there is no distinction between the proprietor or the business.
Any profit from the sole trade business is liable for both income tax and Class 4 National Insurance.
You can employ people including your spouse, as long as they are paid only for the work that they have actually performed.
This is two or more people carrying on business together with a view to making a profit.
Partnerships can also be formed between companies, or between individuals and companies.
Each person or company involved in a partnership is liable for the partnership debts.
Any profit from the partnership will be split between the partners based on the agreed percentage split.
As with the sole trader, the business and personal affairs of the partners are not legally separate. It is recommended that an agreement is put in place to document the arrangements between the partners, including how the profit will be shared and how the partners will join and leave the partnership.
Limited Liability Partnership (LLP)
LLP’s are much the same as a normal partnership for tax purposes, but the members are protected by the limited Liability.
An LLP is a separate legal entity and can enter into contracts and deeds, sue and be sued in its own name.
LLP’s must file annual accounts at Companies House together with other information.
A limited company is owned by the business and not by the individuals and is a separate legal entity from its owners
The liability of the shareholder is limited to the amount of the share capital issued and so offers protection to the shareholders’ personal assets.
The company must have at least one shareholder. It must also have at least one director, there is no requirement to have a company secretary.
The shareholders do not have to be directors. The Directors are treated as employees of the company, but they do not have to draw a salary from the company.
If you are the only shareholder, you will have sole ownership of the company and are more likely to be the director who runs it.
The company pays corporation tax on its profits. The company is governed by law.
Above is a summary outlining the different business structures. It is important to get this right from the start. However, there are many more things to consider when choosing your company structure and we can assist in advising you on the best structure to suit your needs.