Starting a new business? If so, there are lots of things you need to consider at the very beginning and probably the most important of these is to decide which company structure to choose, that’s best for you.
Below we have provided an overview for the four main types of company structures:
Sole Trader;
Partnership;
Limited Liability Partnership;
Limited Company.
The structure you choose will dictate the paperwork you need to complete. Each structure will have different tax and personal liabilities, exposures and benefits, and how you can personally take profit from your business.
The differing structures will also affect your ability to attract investors and ultimately dictate how easy it will be to sell your company.
With this in mind, it’s worth taking advice to get it right first time as changing structures isn’t easy and may have tax implications.
Sole Trader
Setting up as a Sole Trader is a relatively straightforward process – you need to register your sole trader/self-employed business with HM Revenue & Customs (HMRC) – but make sure you do this as soon as possible otherwise you could be fined up to 100% of the tax due in addition to the amount of tax unpaid.
Partnership
In order to create a Business Partnership, you must register your partnership and its members with HM Revenue and Customs (HMRC) for Self-Assessment. You must also register for VAT with HMRC if you believe that your VAT taxable turnover will be more than £82,000 per annum.
Limited Liability Partnership (LLP)
To set up a Limited Liability Partnership you need to register (‘incorporate’) online at Companies House. You need to choose a company name, have at least 2 ‘designated members’, have a registered address and create an LLP agreement. The LLP Agreement sets out how the LLP will be run.
Limited Company
In order to create a Limited Company, you need to register (‘incorporate’) online at Companies House. Ready-made limited company names are available to buy, or, alternatively, if you want to form a brand new limited company, you need to send a memorandum of association, articles of association and a completed IN01 form to Companies House.
A memorandum of association details the limited company’s name, registered office and nature of business. It must be signed by the director(s) in front of a witness.
The articles of association set out the rules for the running and regulation of the company and whilst you can pick up a template for this document, it is advisable to bespoke your articles.
Summary
When setting up a company, it’s important to consider what your goals are and where you ideally see the business in 2-5 years’ time. Your goals will help you analyse the type of structure that’s best for your needs.
We hold free Law Clinics especially for start-ups where we can help you consider the best structure for your business as well as going through all other legal queries you may have in relation to your company. Please don’t hesitate to give us a call. We are happy to help.