Starting a new business poses different challenges, and you need to do lots of research first. There are different structures for how to set up your venture, each one having advantages and disadvantages depending on the size and nature of your business and your long-term plans.
Below we give you a summary of the key legal structures you might be thinking about.
Sole trader: the simplest structure (also known as ‘self-employed’), and the most popular for start-ups. You pay income tax on profits instead of corporation tax, profits over £45,001 are taxed at 40% and over £150,000 at 45%. There is little form-filling required and you have full control over your business as it is only required to complete a profit and loss account. The downside is the unlimited liability and may be more difficult to sell your business.
Partnership: Is similar to a sole trader but there needs to be at least two people to form it, although there is no limit on the number of partners. Each partner registers as self-employed but submits separate tax returns. It offers simplicity and flexibility. Everyone is jointly responsible for debts and damages, and owners are not legally or financially responsible for the partnership. If something does not go as planned, the responsibilities are linked to the business and not to the individuals unless a personal loan is involved.
Limited company: it’s a privately managed business owned by shareholders and managed by the director(s). It can be created when you incorporate your business as a limited company and create a separate legal entity. Corporation tax is at 19% on profits and reduces personal financial risk. If something goes wrong you are only responsible for your share in the business. It involves more administration but can be good for a business in the long run for greater stability and ease of trading. It is easier to raise finance and to sell the company.
Limited liability partnership: popular among accountants and legal firms and are similar to ordinary partnerships. LLP’s must have two ‘designated members’ minimum and if it fails, each member is liable for the value of his shares. There must be an agreement stating the amount of shares each partner holds along with the cost of each share. It offers flexibility and the advantages of limited company and partnership combined but partners must disclose income and start trading whiting a year of registration.
A good accountant will be able to advise you on the most suitable structure for your business regardless of its maturity. Of course, that advice should be tailored to your circumstances and what you want to achieve, and the best solution for you might change over time.
As Henry Ejdelbaum, MD of AIMS Accountants comments: “start as you mean to go on- any new business should really think about involving an accountant right from the start to make sure that they start right. Good advice can help get a solution that best suits your ambitions and personal financial requirements. At AIMS we have been doing so on a daily basis for nearly 30 years, we are able to help your business start in the right path and plan for the future.”
For further information please contact:
Johan Da Silva
AIMS Accountants for Business
020 7616 6634
Notes to editors:
About AIMS Accountants for Business
Established close to 30 years ago, we are the largest independent national network of accountants. We help ambitious and hardworking business owners throughout the UK with their accounting needs, and our focus is purely on providing the highest quality of advice to SMEs, leaving them free to focus on and develop their business.