"London 1st have been my accountants for the past 5 years, and have consistently provided a high level of professional service and extremely helpful advice. In addition to this, the friendly approach of the staff has always made me feel like a valued client whether we speak over the telephone, in person or via email. I would gladly recommend Lindsay, Shereen, Claudia and the rest of the London 1st team to anybody."- David Rotton
Company Start-Ups
How do I decide what is best for me? It is worth thinking about which structure best suits the way you do business as this will affect:
- The tax and national insurance you will have to pay
- The accounts and records that you will have to keep
- Your financial liability if the business runs into trouble
- The ways in which your company can raise capital
- The way management decisions are made about the business
Use our online contractor consultation and Decision-maker to project your income and decide on the best structure
There are several structures for you to choose from depending on your situation. If you are unsure of which structure would best suit your needs contact us to arrange an appointment with one of our trained consultants.
Overview of Business Structures
You'll encounter many different terms used to describe an individual’s situation that is in business:
For instance, we often think of entrepreneurs as ‘self-employed’. Self-Employed refers to your status as defined by law, and contrasts to being employed in that you are not entitled to, nor do you receive the same benefits as would one defined by law as and employee.
There are three main structures in which to set up your own business:
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Sole Trader
Being a sole trader is the simplest way to run a single person business. There are no setup or registration fees. Only simple records and accounts are required and you get to keep and are taxed on all company profits. However, you will also be personally responsible for any debts that your company acquires, and as such your personal assets could be a risk. A sole trading business is usually small in size, with a low turnover, and few, if any, employees.
The majority of sole trading enterprises are in the service sector, including photographers, plumbers, hairdressers, shops, real estate agencies and bed & breakfast hotels. Some 24% of the UK’s 2.3-million size class zero businesses are in the construction sector and 18% are in business-related services.
- Partnerships
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In a partnership two or more people share the costs, risks and responsibilities of the business. They also share the profits as per a partnership agreement that should be drawn up before trading commences.
A partnership is a relatively simple and flexible way for two or more people to be in business together, however as with a sole trader, there is no protection if the business fails.
- Limited company
- Note that if you operate through your own Limited Company, then you will be a shareholder, employee and director of that company. So you are ‘in business on your own account’, ‘have your own business but are not ‘self-employed’.
Sole Trader |
Partnership |
Limited Company |
|
|---|---|---|---|
Setting up |
Register as self employed |
Partners need to register as self employed |
Register as a director of a Limited company |
Liability |
If business fails, then the owner is fully responsible for all the business' debts.
|
If business fails, then owners fully responsible for all business debts |
Company offers protection to directors and shareholders against liability for the company's debts |
Management |
Owner's word is final |
Max 20 partners- all share responsibility in control | Directors word is final |
Finance |
More often than not, owner's personal money |
Usually partners personal money |
Directors personal money |
Profits |
All profits belong to the owner. |
All profits shared between partners – as agreed by the deed |
All profits belong to the directors of the company, shared between them if more than one. |
Taxes Etc. |
Even if the owner doesn't draw on his profits they are still taxed. Losses can be offset against tax on other income |
Self employed status. Even if the partner's don't draw on the profits they are still taxed. Losses can be offset against tax on other income. | Director is able to retain profits in the company, only taxed on the paid out amount |
Continuity |
If owner dies or retires, the business may crumble |
Partnership is dissolved if one of the partner’s dies, resigns, or becomes bankrupt.
|
Company can continue to trade if made up of more than one director. Single director company will cease to trade |
Choosing the best name for my business
Sole Trader and Partnership names
People operating as sole traders or partnerships can use their own names or trade as a different business name.
If you choose to trade as a different business name you are not required to register this name but may choose to do so with the National Business Register.
If you are going to trade under a name different to your own personal name you must display the name/s of the owners and an address where documents can be served on all business stationery and at your premises. Design letterheads, business cards and signage accordingly.
There are certain rules and regulations governing choosing a business name as a sole trader or partnership. You should not use any words deemed as 'sensitive' in the business name. For more information see the Companies House website.
If you are working as a sole trader or within a partnership, you should register as self - employed within 3 months of starting to trade. Failure to do so could result in a penalty of £100 from HM Revenue and Customs
Limited Company names
If you have decided to set up a Limited Company you will need to select and register a name for your company with Companies House. London 1st can take care of this step for you with our all-inclusive online Company Formation service.
There are regulations applying to selecting and registering a company with Companies House. For further information see the Companies House website