Trading Structure
Once you’ve made up your mind that you are going to start in business you need to decide what form the business will take. Each of the following options has it’s own merits and limitations.
Sole Trader
This is probably the simplest solution if you want to start up on your own.
You run the business and make the decisions (staff may work for you though).
You are individually responsible for any debts and obligations that the business owes.
There’s less paperwork and fewer formalities than partnerships and limited companies.
You don’t have to produce a balance sheet or have accounts audited.
You need to let the tax authorities know that you are starting in business as your tax status will change to self employed.
Partnership
Setting up in partnership is almost as simple as setting up as a sole trader. Where you intend to set up in business with another person(s) there are some things of which you should be aware:
You will be liable as an individual for any debts or obligations incurred on behalf of the firm by your partner(s) even if you did not agree or know what transaction they had entered into.
It makes sense to draw up a partnership agreement which formally documents the arrangements between the partners - our legal experts can help you with this.
You should know as much as possible about your prospective business partner to help avoid any unwelcome surprises later on.
You don’t need to produce accounts, but it would be wise to do so.
Limited Companies
Setting up a Limited Company is more complex than setting up as a sole trader or a partnership.
Limited Companies are legal entities in their own right and are distinct from the directors who run them. This means that as a Director your liability for debt will be limited to the capital you have invested in the business (except where you have granted personal security/guarantees for the company’s obligations).
Limited Companies are bound by Companies Act legislation.
The company’s secretary and directors have legal duties e.g. prepare audited accounts and make an annual return filing these accounts at Companies House within the timescales set down by law.
Directors are classed as employees for income tax purposes.
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