Which legal format of business to form

Which legal format of business to form

Is it going to be a limited company, partnership, sole trader or other?

There are six main ways of owning a business in the UK private sector.

The most common being the first three methods listed below.

Click below to get further information on each particular business format:

CONTENTS

What is a Sole trader Trader?
What is a Partnership?
What is a Private Limited Company?
What is a Public Limited Company?
The difference between public and private limited companies
What is a Franchise?


What is a Sole Trader?

In brief: 

Setting up: Just needs to register as self-employed. https://www.gov.uk/topic/business-tax/self-employed

Liability: If the business is to fail, the owner is liable for all the business debts.

Management: The owner has full responsibility and the final word.

Finance: More often than not, it is the owners personal finance.

Profits: The owner fully owns profits made in the company.

Taxes : When having a Self-employed status, even if the owner does not draw down a salary from his profit, they are still taxed, and the losses in the business can be offset against tax from other income sources.

Continuity of sole traders: If the owner retires or passes away, the business may dissolve.

Details: Unlike other company formations, sole traders (and partnerships) can start trading immediately, although specific types of businesses will require a licence to start trading.

When trading in a different name besides the owners, one must display the name and the full address of the proprietor at the premises and on the business stationery.

Seek advice from professionals such as solicitors or accountants and business support advisers.

What is a Partnership?

In brief

Setting it up:

The partners involved need to get registered as self-employed. It is a good idea in getting a deed of partnership drawn out by a solicitor in case of any discrepancies and arguments that may arise later.

Tip: Useful ‘legal document templates’ can be downloaded from Simply Docs for a small fee.

Liability:

If the business is to fail, the owners are entirely liable for all the business debts.

Management: The partner’s share responsibility for controlling the business.

Finance: More often than not, it is the partners’ personal finances.

Profits: All profits are shared by the partners as is set out in the partnership agreement.

Taxes Etc: Even if the partners do not draw down a salary from his profit, they are still taxed, and the losses in the business can be offset against tax from other income sources.

Continuity of a Partnership: If one of the partners is to retire, or becomes bankrupt or dies then the partnership is dissolved.

Details: Unlike other company formations, partnerships are able to start trading immediately, although specific types of businesses will require a licence to start trading.

If trading under a name other than the owners, then it is critical to display names of the owners and an address, for each, at which documents can be served.

Seek advice from professionals such as solicitors or accountants and business support organisations.

Tip: Useful ‘legal document templates’ can be downloaded from Simply Docs for a small fee.

Find a solicitor/law firm near you by checking online.

What is a Private Limited Company?

In brief

Setting up: You have to register with the Registrar of Companies at Companies House.

Liability: The members’ personal assets are protected if the business falls. (Limited liability) Your losses will only be what you have put into the business or as agreed in the memorandum.

Management:The business is in control by the board of directors. They are personally responsible for the management and are obliged to act in the Limited company’s best interests.

Finance: The capital is raised through the sale of shares. Although not to the public.

Profits: Dividends are paid to the shareholders.

Taxes Etc: Employee status. The Directors are employed by the company through

the PAYE tax system.

Continuity: The company is a legal entity in its own right and can be sold, or buy shares in other companies. It has ‘perpetual existence’.

Details: An accountant will be happy to give advice on these matters.

For a fuller explanation of how to form a private limited company, and what is required to run it.

Setting Up a Limited Company: The full guide.

What is a Public Limited Company?

 In brief.

This is the same as a private limited company, in that there is a limited liability—however, some vital differences to be aware of.

The difference between public and private limited companies

  • A public company may offer the sale of its shares to the public.
  • Before starting in business or borrowing money, a public company must satisfy Companies House that a minimum of £50,000 worth of the shares has been issued. Also, each share has been paid up to a minimum of 1 / 4 of the face value.
  • It will then be authorised to commence business and borrow.

 For a fuller explanation form a Public Limited Company contact ‘Companies House’.

 A specialist accountant will be happy to advise on these matters.

 Contact:

For more information about Limited Companies visit the Companies House Web site:

What is a Franchise?

In Brief:

A franchisee owns and runs a business franchise as part of a franchise network. A franchisor provides the business franchise. We have already published a substantial amount of information on franchising on this site.

What to consider before buying a franchise.

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