When setting up in business, one of the first big decisions that you will need to make early on is which business structure will work best for you and your business model.
Choose carefully, as each business structure has its own pros and cons, and it’s better to get the right business structure in place from the start.
The following are popular business structures for start-ups:
Very popular as the quickest and easiest business structure to implement, becoming a sole trader involves very little red tape and minimal start up costs.
All that is required is that you register as self-employed with HMRC and file a self-assessment tax return each year.
On the flip side, any income is taxed as it would be as an employee (although you can deduct business expenses), which is a less favourable tax arrangement than other business structures.
Another major con to becoming a sole trader is that you are personally liable for any business debts – which could mean potentially losing your home or other important assets.
Forming a partnership is a great way to share the load and combine ideas. However, your choice of business partner is crucial. Someone with a different but complementary skill set to yours is ideal, so that you can each have clear responsibilities.
As with a sole trader, each partner has to register with HMRC and file separate tax returns.
Profits are shared in a partnership, as are debts.
Setting up a Ltd company has some serious benefits, including a more favourable tax regime and separate business and personal debt liability.
However, there is more red tape when setting up a Ltd company, and you have ongoing requirements to file annual, detailed accounts to HMRC and Companies House.
LLP (Ltd Partnership)
A LLP combines elements of both a Ltd Company structure and a partnership. While choosing this business structure offers limited liability, it does not offer the same tax benefits as each partner has to register as self-employed and complete a HMRC self-assessment.
Choosing between the business structures is a decision that requires some consideration. If you need additional advice, www.businesslink.gov.uk is a great resource.
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