Setting up your own business is an incredibly exciting time but it can also be daunting when you’re not sure of the best way to go about it. From being a sole trader or joining a partnership to registering as a private limited company, there are several different avenues you can pursue.
Each has their own pros and cons so it’s important to understand which would be the most beneficial to you and your future. To help get you started, below is a quick guide to the different legal structures available to you when setting up a new business.
– Many new businesses set up this way because it’s easy and inexpensive
– You can still employ staff later down the line if necessary
– Any decisions you make are instant because they don’t have to go through colleagues and board members
– After tax, all your profit belongs to you and doesn’t have to be divided amongst others
– The law makes no distinction between the business and its owner – liability is limited and therefore any business debt can be met from the owner’s personal wealth if the business fails
Limited Liability Company (Ltd)
– Setting up a business as a limited company adds credibility and can even help when it comes to borrowing money
– Most private limited companies are owned by shareholders and are limited by shares. This means that the face value of the shares an individual has in the business is the most they can be called to pay if things go wrong
– A limited company is a separate legal entity to the company directors. Therefore, it is the business itself that takes on the responsibility of any financial liability if the business goes under. This means that your home, family and lifestyle will all be protected
– It does require a lot of administration work and if you’ve never done it before, you may struggle with your year-end accounts. One way of getting around this however is to hire an accountant to do your accounts for you
– A partnership is just as flexible as being a sole trader and benefits from the experience and contacts of more than one person
– The running of the business doesn’t come to a stand-still if somebody is ill or on holiday
– If one person wants to leave the partnership it can create problems
– In a standard partnership, all partners are responsible for any debts owned by the business. This doesn’t only apply to debts you have incurred jointly, but also to those of your partner so make sure you trust the person you are starting up a business with
As well as having benefits and drawbacks, there are also tax benefits and implications of all the different legal structures. In order to ensure the greatest success, it’s very important to have a clear understanding of this before committing to anything.
Windsor Accountancy is currently offering a free, no obligation 45-minute consultation with one of our qualified accountants to help you work out what is the best company formation for you. We will also advise you on VAT, how to manage PAYE, accountancy software, how to raise funds for your business and much more.
As well as the consultation, we will also give you our tax guide for free and our new business start-up guide (worth £19.99) completely free as well. More information about our free 45-minute consultation can be found here or alternatively, please feel free to contact Windsor Accountancy.