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Now
that you have a business idea
and you know your market,
the next step is to decide on your business identity.
There
are four main legal forms your business can take:
1.
Sole Trader
This
is the simplest way to start a business. It means that you
alone are responsible for the business. You do not need
to register with anyone, but the following is required:
- Stationery
with your name and business address
- Check
if the business name that you use is legally acceptable
(see 'Choosing a business
name')
- Let
Inland Revenue and the DSS know that you are self-employed
| Advantages |
Disadvantages |
|
Quick
and easy to start.
Simple
record keeping.
Keep all profits (after tax).
|
Liable
for all the money
your business owes.
Have to do it all - could be lonely.
Taking time off is a problem. |
2.
Partnership
This
is an association of two or more people running one business
with a view of making a profit. You can have up to a maximum
of twenty partners. Each partner is jointly liable for debts,
but any one partner can be held responsible for 100% of
the debts even if you do not have any knowledge of the debts.
It is
advisable to have a partnership agreement, that is, a deed
of partnership that is drawn up by solicitors. You do not
have to register your partnership, but you will be required
to:
- Check
if your business name is legally acceptable (see 'Choosing
a business name')
- Have
your name and address on your stationary
- Let
Inland Revenue and DSS know you are self-employed
- Check
that the business name you choose is legally acceptable
- Register
for VAT if your sales turnover exceeds £54,000
| Advantages |
Disadvantages |
|
Have
more ideas and complementary skills.
Allows a greater business potential.
Potentially additional finance.
Shared responsibility for risks and costs.
|
Split
decisions.
Jointly
responsible for debts. |
Limited
Liability Partnership (LLP) Act 2000
On 8
November 2000, the Chancellor of the Exchequer announced
the commencement date for registration of a new type of
partnership known as Limited Liability Partnership, to begin
on 6 April 2001. Limited Liability Partnerships (LLPs) are
a new way of organising a business. Whilst the business
is legally a body corporate, the members can limit their
personal liability and avoid putting their own personal
assets at risk. Broadly this is not something that a member
of a normal partnership can do and until now members have
had to form companies in order to limit potential claims
on their own personal assets. For more information visit:
www.dti.gov.uk/cld/llpbill/index.htm
3.
Limited Company
A limited
company is a business that exists separately from any of
the people who own it. It means that the business is owned
by a number of people who buy shares in it and get a share
of the profits in proportion to how much they have put in
it. The shareholders have limited liability which means
if the company fails, they would not be held responsible
(liable) for company debts.
A limited
company is treated as a separate legal entity which means
that:
- It
pays its own tax on profits (corporation tax)
- It
can sue and be sued
- It
is completely independent of the people who work in it
or own shares in it
| Advantages |
Disadvantages |
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Limited
liability to the business debts.
Often perceived more stable than a sole trader or
partnership.
Seen to have more prestige.
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Required
to have an audit.
More
complex rules and regulations.
Additional
costs in setting it up and running it.
Record
details have to be more detailed.
National
Insurance contributions are potentially higher.
|
Suggested
next stage: Setting up a limited
company
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