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Setting up in business.
When you are starting up in business you will need to choose a business structure, most of us have heard of limited companies and partnerships, choosing the right format for your business will have an impact on the responsibility you have for lots of business areas from Tax, to admin, this article is designed to give you an overview of the different types of business structure.
Setting up as Sole Trader
Generally selected if the business is to be run by one person, this does not mean that you cannot employ staff; it just means that you, and you alone, are responsible for the business. On the plus side you take the profits after tax. But you do have responsibilities that are yours, not your businesses.
If the business makes a loss it's your loss, and contracts, and bills tend to be yours, you are also responsible for Tax and administration.
If you would like to set up as a sole trader you will need to register with the Tax Office (HM Revenue and Customs), you can register after you start, but if you leave it too long you may receive a fine.
On the Tax side of things, you will have to complete a Self Assessment form each year to assess your tax liability (charged as income tax); you will have to pay National Insurance as well.
You will not need to register your business for VAT unless you exceed the turnover figure of £79,000 (correct at date October 2013)
Setting up as a Limited Company.
When you set up a limited company, you are setting up an organisation that will run your business, it is responsible for its actions, and this means that the companies finance and yours are kept apart.
The company will be responsible for its own tax (corporation tax), as the owner, it will pay you an income and may share its profits.
Who owns the company (share holders) is up to you when you set it up, the running of the company is the responsibility of the Directors (who are not always share holders).
The Directors have legal responsibility for the company, the share holders are generally covered under a limitation by shares, what this basically means is if they hold shares, but have not paid for them, and the company goes bust, they only have a responsibility for the value of the unpaid shares.
The Directors are responsible by law -
To try to make the company a success
They must comply with the articles of association for the company
Disclose any conflict of interest
Ensure compliance with the HMRC rules and accounts
Register for self assessment and submit a return each year.
The director can delegate responsibility for some of these, but ultimately they are still responsible, failure to comply and the director can face prosecution.
If you wish to set up a limited company you will need to contact Companies house, stating the details of the company including the directors that are going to run the company, they will issue a certificate of incorporation, this shows the date the company was formed and the company number, the company now legally exists.
There are a number of other types of limited companies but these are rare and tend to differ in the way the shares are traded and the liability of the share holders.
These are -
Public limited Companies - the shares of the company are traded on the stock exchange.
Private Unlimited Companies - if the company goes but the shareholders are liable for all debts
Private Limited Company by Guarantee - if the company goes bust the shareholders have a specified liability.
Setting up a Partnerships.
This can be two or more people or organisations that set up in business together who are all responsible for the business in every way, and who all take a share in the profits (pay their own tax)
To set up a partnership you will need to register with the Tax Office (HMRC) and register for self assessment.
In addition to completing your own tax returns one of the partners must complete and submit a partnership self assessment tax return each year.
Since 2001 it has been possible to set up a Limited Liability Partnership (LLP), this works a little differently to partnerships, in the eyes of the law a LLP exists in its own right with members, its common place that an agreement is set up so that the members do not have a liability for other members actions, members within the LLP agreement cannot lose more than they have invested.
If you are a club or society you may wish to set up an Unincorporated Association, these mostly occur for voluntary groups or clubs.
Unincorporated Associations do not need to be registered but members are responsible for any monies owing.
We would recommend that whatever company you plan to set up, talk it through with a professional, either a commercial solicitor, CAB or one of the local business help organisations set up by the Government.
Handy Telephone numbers are-
Business Link Helpline 0845 600 9006
Business Wales Helpline 0300 060 3000
Business Gateway (Scotland) 0845 609 6611
Invest Northern Ireland 0800 181 4422
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