If you are thinking of starting a new business in the UK please come and talk to us for totally free advice. We will guide you through making the right choice and making sure your set-up is the most cost effective. This is just a brief summary but gives the basic outline of each legal structure.
So everything is in place and you have a great idea and business model. You’ve done your research and produced a business plan etc.….. But what about the legal entity? We will consider the 4 most used in the UK and give a brief summary of Pros and Cons.
Sole trader
A sole trader is considered to be ‘self-employed’ and you must be registered with HM Revenue & Customs (HMRC) for self-assessment. You will pay income tax and National Insurance in accordance with HMRC tax thresholds on profits generated.
Summary
Pros
Owner of the business, entitled to keep all profits
Low cost, easy to set-up
Full control retained
Cons
Full liability for debt
Partnership
You and your partner(s) personally share responsibility for your business. Partners share the business profits, and each partner pays tax on their share. Similar to sole trader but more than 1 of you involved in the business.
Summary
Pros
Easy to form, manage and run
Easier to raise finance
Cons
Full liability, affecting all partners
Partnership disagreements
Limited liability partnership (LLP)
No limit to the number of Partners but at least 2 have to be ‘designated members’ responsible for filing annual accounts.
Summary
Pros
Flexibility: can be incorporated in members’ agreement
Advantages of both limited company and partnership combined
Cons
Partners must disclose income
LLP must start to trade within a year of registration – or be struck off
Limited Company
A private company is incorporated and limited by shares. This means that the company has shareholders and the liability of the shareholders to creditors of the company is limited to any money they originally invested. A shareholder’s personal assets are protected in the event of company insolvency, but money invested in the company may be lost.
Summary
Pros
Less personal financial exposure
Limited liability protection
Responsible for its debts only to the extent of the amount of capital invested.
Cons
Involves set up costs
Annual accounts and financial reports must be placed in public domain