Friday, October 30, 2015

Choosing the Right Structure for Your Business

When setting up a new business there are a look of decisions to make, but one of the most crucial is to decide what type of business you are going to be.  

Image courtesy of stockimages at FreeDigitalPhotos.net


Here are some key pointers to help you to understand different legal structures:

Sole Trader
  • One business owner, who is personally responsible for any losses the business makes
  • Taxed on a self assessment basis - you will fill in a paper or online form once a year
  •  Income tax, class 2 and class 4 National Insurance are due on the profits of the business
  • A sole trader can employ people so sole traderships can be small and large!
  • Accounts are not filed publicly, you just keep your own financial records for completing your self-assessment
Partnership 
  • Two to twenty business owners, who are personally responsible for any losses the business makes
  • Can have corporate (company) partners
  • Partners are taxed on a self-assessment basis like a sole trader and a separate partnership tax return is produced 
  • Income tax, class 2 and class 4 NI are due on the profits of the partnership
  • Accounts are not filed publicly, though again you will keep your own financial records
Private Limited Company

  • Separate legal entity
  • Limited liability – limited by shares or by guarantee
  • Companies must have at least one director and one shareholder but they don’t have to be the same person
  • Corporation tax is due on company profits
  •  Directors have responsibilities they must understand including paying Class 1 National Insurance as an employee of the company
  • Company accounts and annual returns are filed publicly at Companies House 
Limited Liability Partnership
  • Hybrid between a partnership and a limited company
  • Minimum two partners, no maximum
  • Must have at least two designated members (who assume director responsibilities)
  • Partners are members
  • Partners are taxed on a self assessment basis like a sole trader and a separate partnership tax return is produced 
  • LLP accounts and annual returns are filed publicly at Companies House

Community Interest Company
  • Limited by shares or limited by guarantee
  • CIC’s are set up to benefit the community rather than the shareholders – they are not for profit organisations
  • There is an asset lock
  • Limitations are applied to dividends and directors remuneration has to be reasonable
  • Corporation tax is paid on profits of the company
  • Company accounts and annual returns are filed publicly at Companies House and CIC return is filed with the CIC regulator



Image courtesy of Stuart Miles at
FreeDigitalPhotos.net
Before you make a choice it is important to explore each structure’s advantages and disadvantages from the following aspects:

Who has financial liability for the business debts?
What administration is required?
What are the tax implication?
How to raise money for business?
Who makes the business decisions?




The Women's Organisation offer a great course to help you get to grips with the business structures and to understand the complexities that go along with that.  Our 'Should I Register a Limited Company' course is part funded by The Women's Organisation so is available for just £25. If you are trying to decide which structure to choose or are thinking of changing business structure check out more about this course here.
If you are ready to book 'your place visit the events page of our website for latest dates or contact our team on hello@thewo.org.uk or 0151 706 8111 for more information.

by Business Adviser Yan Miao

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