You’ve got an idea and want to turn it into a business. It may be an extension of a hobby, it may be a brand new idea or it may be something to do because you can’t get a job. You may be interested in buying an existing business or taking on a franchise.
Stop and think about how you are going to structure your business.
There are a lot of questions you need to ask yourself before just diving in. We can’t cover everything in this article because there are loads of possibilities, so we will concentrate on the basic structure.
You can structure your business in quite a few ways depending on individual circumstances, aims and preferences. Let’s look at some of these:
Probably the simplest structure. All you really need to do is say, “I am a sole trader” and you are away. Of course, you need to tell HMRC and register with them. You may even need to open a business bank account. That’s probably enough to get you going but you need to be aware that you must keep proper records and you may need to register for VAT.
A little bit more complicated than a Sole Trader and may be the option. If there is someone else involved (a partner) you probably need to set up as a partnership rather than as a sole trader. There can be some tax advantages in including a spouse as a partner.
The partnership and the individual partners will need to be registered with HMRC and a business bank account probably required too.
Limited Liability Partnership (LLP)
This is an extension to a simple partnership which has a mixture of rules – partnership and limited company. Effectively it is taxed as a partnership but has the protection of a limited company. It also has most of the legal and regulatory requirements of a limited liability company. An LLP is often used when one of the partners is a limited company, although it does have other attractions.
A company structure has more rules and regulations to comply with and the accounting and reporting requirements are fairly stringent. However, there can be tax advantages if the business is profitable, it can provide greater flexibility. There is a higher level of personal protection than provided by a sole trader or partnership structure.
A company can either be limited by shares (capital) or guarantee.
The business structures above are the most common. However, there are others which might be relevant in some situations. These include:
Community Interest Company (CIC)
Community Benefit Society (CBS)
Charitable Incorporated Organisation (CIO)
Where more than yourself is involved, it may be prudent to have agreements between the parties to minimise the risk of future disagreements. These can be Partnership or Shareholder Agreements depending on the chosen structure.
It isn’t always easy to switch between types of structure so it is important to make an informed decision at the outset of your venture. That is where we can help. Take advantage of our FREE initial consultation to discuss the structure options available.