Starting a new business? If yes, numerous initial considerations await, with the pivotal decision being the choice of the most suitable company structure 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
Registering as a Sole Trader is simple: register your business with HM Revenue & Customs (HMRC) promptly to avoid potential fines of up to 100% of the tax due, plus any unpaid tax.
Partnership
To establish a Business Partnership, register your partnership and its members with HM Revenue and Customs (HMRC) for Self-Assessment. Additionally, if you anticipate your VAT taxable turnover to exceed £82,000 annually, register for VAT with HMRC.
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. Choose from ready-made limited company names for purchase. Alternatively, to establish a new limited company, submit 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 establishing a company, it’s crucial to contemplate your goals and envision where you envision the business in 2-5 years. Your goals will help you analyse the type of structure that’s best for your needs.
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