Making sure it’s all legal
To put your business on a proper footing with HM Revenue & Customs and other authorities, you need to make sure that it has the right legal structure. There are several structures to choose from, depending on your situation. It's a good idea to get advice from an accountant or solicitoras to which one will suit you best. Below is a summary of the different options:
The advantages of being a sole trader include independence, ease of set up and running, and that all the profits go to you. The disadvantages include a lack of support, unlimited liability and the fact that you are personally responsible for any debts run up by your business.
One of the advantages of being in a partnership include its ease of set up and running. Also partners can bring a variety of skills and experience to the business.
On the other hand, problems can occur when there are disagreements between partners, there is ulimited liability, and, as a partner, you are personally responsible for any debts that the business runs up.
Limited liability partnership (LLP)
LLPs retain the flexibility of a partnership as opposed to the rigid structure of a limited company, and your personal liability is limited. There is also no restriction on the number of members, but at least two must be "designated members" - the law places extra responsibilities on them.
However, the formation of an LLP is more complex and costly than that of a partnership and problems can occur when there are disagreements between other members. If the partnership reduces in number and there are fewer than two designated members then every member is deemed to be a designated member.
Limited liability company
A limited liability company provides reduced exposure to meeting the company's debts. This means that your personal risk will be restricted to how much you invest in the business and any guarantees you have given in order to obtain financing.
But you should remember that this type of company also brings a range of extra legal duties, including the maintenance of the company's public records eg filing of accounts.
Community Interest Company (CIC)
This is a new legal structure that is similar to a limited company, designed to allow social enterprises to use profits and assets for the benefit of the community. They are more lightly regulated than charities, but do not have the tax advantages of charitable status. However, charities can set up a CIC as a subsidiary. CICs can be limited by shares, by guarantee or can be a public limited company. Find out about Community Interest Companies on the CIC website.www.cicregulator.gov.uk
The major advantage of a franchise is that it takes advantage of the success of an established business and support networks. Its disadvantage is that your freedom to manage the business is limited by the terms of the franchise agreement. Also franchisees often pay a share of their turnover to the franchiser, which brings down overall profits.
Social enterprises are businesses that trade for a social purpose and represent a diverse and growing range of business activity across the UK. Find out about social enterprises on the Social Enterprise Coalition website. www.socialenterprise.org.uk
Information taken from www.businesslink.gov.uk
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