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[TigerDragonConsulting]

Businesses in the UK usually take the form of sole trader, partnership, limited company (Ltd), limited liability partnership (LLP) or public limited company (PLC).
What is the right structure for your business? This question is one of the key questions to consider when you are ready to start your business. We will consider here just sole trader, partnership, limited company and limited liability partnership, as it is unlikely that you will be starting your business with a public limited company (i.e. a company listed on a stock exchange).
Sole trader
Most new businesses are set up as a sole trader. It essentially means you just start your business – it is easy, it is inexpensive and there is very little in the way of on going bureacracy. There are no fees to register so you can just start trading.
As a sole trader, decisions can be made quickly and everything you make belongs to you alone, well, after the tax man takes his cut. A sole trader is self-employed and profits will be taxed as income.
Liability for sole traders is unlimited, thus the debts of the business can be met by business owner themselves if business fails. Personal assets of the owner such as a family home may be exposed.
Unless carefully planned, the business will not normally continue in the event of the owner’s retirement or death.
A drawback can also be that it may be more difficult to raise bank finance where personal assets are limited to guarantee the finance.
Partnership
Many sevices businesses use the partership structure, such as law firms, accountancy firms and architects. Partnerships can be construed as an extension of the sole trader structure. Partnerships can be as flexible as sole traders and benefit from continuity when a partner is sick or on holiday.
If the partners in the business are prudent, they will, at the outset, determine in a partnership agreement how the liabilities, ownership and profits of the business are split and what happens if one partner wants to leave.
As with a sole trader, each partner in a partnership is treated self-employed and puts in a separate tax return.
All partners are also responsible for all the debts owed by the business.
Limited liability company
Setting up a limited liability company is done by registering the company at Companies House (the UK company registartion authority).
Before trading can officially commence, the company needs to be officially registered. The owners must decide on the name of the business and on its officers (directors and company secretary (there is no legal requirement to have a company secretary, although many companies still choose to have one to deal with the administrative side of owning a limited liability company)).
Having a limited liability company can bring additional credibility to your business. Unlike the sole trader and partnership structures, there are added administrative burdens on a limited liability company, its directors and shareholders.
A private limited company is considered a separate “person” to its owners. The advantage over the unincorporated structures noted above is that the shareholders can control their financial exposure – hence the name “limited liability”. The owners personal assets are protected to the extent they have not been put up as security under a director/shareholder guarantee.
Most private limited companies are owned by their shareholders and are limited by shares. This means that the face value of their share in the business is the most they can be called on to pay if things go wrong.
The tax regime is more favourable to a registered company than to a sole trader. Limited companies pay corporation tax on their profits and their company directors are taxed as employees in the same way as other people who work for the company.
Full statutory accounts and a company tax return must be completed each year. Statutory accounts and annual returns will need to filed with Companies House. Limited companies are also required to hold at least one general meeting (of shareholders) a year (the AGM). An organised company will ensure its holds regular Board meetings and ensures such meetings are correctly minuted. Such administrative matters, if kept up, give further credibility to the owners, directors and management and may help when seeking finance or thinking of selling the business.
You will also have to file statutory accounts and an annual return to Companies House, although small and medium-sized companies can submit an abbreviated version.
Limited Liability Partnership (LLP)
Like (unregistered) partnerships, LLPs are normally the structure of choice for professional services companies.
Limited liability partnerships are a cross between traditional partnerships and limited liability companies. They offer the partners limited liability but with the tax regime and flexibility available to partnerships. The number of partners is not limited but at least two have to be ‘designated members’ responsible for filing annual accounts.
The limited liability partnership structure can protecs its members’ assets, limiting their liability to however much they have invested in the business and any personal guarantees they may have given when raising loans. But it doesn’t give you the same tax advantage.
As in an ordinary partnership, the members’ share of profit is taxed as income. Each member should register as self-employed for tax purposes. LLPs must be registered with Companies House. A members agreement can be used to document matters such as the share of profits that each member to the agreement is entitled.
For more information on the structures mentioned above, please contact us at enquiries@tigerdragonconsulting.com
If you are ready to take the plunge, we can take care of the registration of your company and provide additional support through our nominee company secretary service.
Please do leave a comment or ask any questions.
In other news, we are pleased to announce that we will be exhibiting at the Youth Enterprise Live event at Earls Court on 12 and 13 October. If you are aged between 15 and 30 and are considering starting a business please attend this event (its free). You can find more information at http://www.youthente....uk/exhibitors.

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