Company formations

Choosing the best business structure

Sole Trader, Partnership or Limited Company Sole Trader

Starting business as a sole trader is quick, easy and almost immediate. You will need to inform HMRC (Her Majesty's Revenue and Customs) that you are now self-employed but once you have done that you are pretty much ready to trade. Bear in mind your industry and any specific requirements, certifications or licenses that maybe required e.g. within the construction industry.

Tax and National Insurance is payable against any profits of the business and unlike a limited company you will be liable for any debts your business incurs. However any losses can be offset against tax on your income.

You will also be required to submit a self-assessment form yearly and keep up to date records of your transactions and accounts.

Running a business as a sole trader in terms of bureaucracy is straightforward in that you do not need to follow the legislation which is required of a limited company.

Partnership

A partnership exists where two or more people set up a business and both are owners rather than employees.

In this case, both partners are liable for any debts of the business and the actions of the business i.e. one signature counts for both partners irrespective of the capital invested by each partner.

An agreement is required for a partnership to identify ratio of profits for each partner and also to clarify the course of action in the event of the death of one of the partners.

Perhaps the point to note here is that owners of a partnership are possibly at a greater risk of personal liability due to the fact that all partners are equally responsible for any business actions that may be signed off by just on partner.

An alternative to this is a Limited Partnership where the business is not run by the partners but as a limited partner their liability is limited to the capital invested in the business.

Limited Company

A limited company is a private company registered in the UK by Companies House and assigned its own incorporation certificate and number.

The company's profits, losses and liabilities belong to the company rather than an individual and the company run by its directors. The benefits of a limited company are such that if the business should fail the losses and liabilities incurred remain limited to the company and do not extend to the personal assets of the directors and/or shareholders.

There are many factors to consider in deciding the best structure for your business and these involve level of risk, employees VAT and legislation.

It is true to say that small businesses may be better off remaining as a sole trader rather than getting caught up in the legislation required for a limited company; but it is also a consideration that many businesses prefer to deal with limited companies and many employees prefer to work for limited companies.

Click Here to register your own company today.
The process is quick, easy and simple.