What business structure should I have? Sole Trader V Limited Company
Starting your own business in 4 easy steps
Step 2 of 5 – Company Formation
By Simon Misiewicz of www.optimise-gb.com -25th October 2011
There are a variety of business structures and we hope this simple guide helps you make the right decision for you
Sole trader
A sole trader business is simple to set up. All you need to do it contact HMRC and let them know that you wish to set up a business. You will need to keep a record of your sales and expenses and complete an online text return after financial year end 5th April.
Benefits: Easy to set up, only one set of documents to complete each year, can easily be administered.
Downsides: You are responsible for any debts and legal issues. If someone sues you or you have a debt that your business cannot afford then you may risk your personal assets such as your home to cover the costs.
Partnerships
You may be considering working with others in your business that takes some responsibility of running the business. This requires you
to form an agreement covering: How much money each person will invest, the ownership ratio of the business and the roles and responsibilities of each person. You will need to register each person with the HMRC to inform them that a partnership agreement is being formed
Benefits: Greater level of expertise, bounce ideas of one another, shared risks
Downsides: Disputes of power and decision making, delay in decisions being made, each person has to register with HMRC plus a partnership set of accounts needs to be submitted.
Limited companies including limited partnership arrangement
There are two types of companies.
1) Limited Liability
A limited company means that the finances of the company is separate from the owners. That means that any revenues, assets, debts
and risks will not affect the individual business owner’s assets in the event of the business closing down. Finances such as wages and dividends are paid to the directors and they are responsible for the payments of tax.
2) Unlimited liability
An unlimited liability company means that the business owners are still responsible for any debts or legal outcomes. This is not an advisable option and you should consult with a solicitor when considering this option
A company director must be aged 16 or above. If you are looking to form a company please use our online service to register your business. Once yo have formed your company you will need to notify HMRC
.
If you have any additional questions or would like additional support then please contact us
Good luck
Simon
