Friday, 13 January 2012


So you have decided to start your own business, you have this great idea, you have started your business plan and now you need to know what to legally define your company as, well here is a simple guide which will tell you about the possibilities and some of the pros and cons of each.

Choosing the right one is an important step so take your time over this and access your goals and ambitions and chose the one which will best suit your business.

Sole Trader

This is by far the easiest way to set up a business and it is the most popular for those starting out, below are some of the key features:
  1. only one person runs and is legally responsible for the business
  2. All you need to do is register with HMRC as self employed other than that no other registration is required
  3. you trade in your own name for example, Sarah James or with a trading name such as Sarah James trading as My Business
  4. you are taxed via the Self Assessment and you normally pay tax twice per annum.
  1. You are only need to maintain a Profit and Loss and Balance Sheet so accounts are kept to the minimum and so are fairly straight forward.
  2. very easy and quick to get up and running
  3. All profit after tax is yours to keep.
  1. you are personally liable for all the debts incurred
  2. your personal assets are at risk, if your business fails your creditors can seize your property in settlement.

This is the second most popular way of running a small business.

  • a minimum of 2 and a maximum of 20 partners
  • Can operate under partnerships name or the partners name followed by trading as. But all correspondences must use name of all partners.
  • Each partner must register with HMRC as self employed.Partnership agreement should be signed, to minimise problems in the future.
  1. Very easy and quick to start.
  2. Accounts can be simple if you maintain organised books.
  3. responsibility for business debts is shared amongst partners.
  1. you are personally liable for up to 100% of the partnership debts and creditors can chase you for this
  2. your personal assets are at risk and can be seized by creditors to settle debts
  3. When you sign a partnership or verbally agree a partnership, you must split the profits in the agreed proportions
Limited Company

This is one of the less popular methods for start up companies, mainly because the costs to set them up are much higher, however recent legislative changes mean that ltd companies with profits less that £10k have tax breaks mean that they are rising in popularity. They are usually done by established businesses and start-ups with high start up capital.

  • a separate legal entity in its own right and can sue and be sued
  • owned by the shareholders
  • set up via registration at Companies House - see link
  • annual accounts have to be submitted without fail
  1. Liability is limited by shareholders stake in the business
  2. The company is an entity in itself and hence will not dissolve when the directors or shareholders die or leave.
  3. Ltd companies are viewed in a more trustworthy light that sole traders and partnerships.
  1. Large amount of paper to register company.
  2. It has much higher costs associated with set up.
  3. you can be fined for missing the annual returns

1 comment:

  1. Good post! Thanks for sharing this information I appreciate it. God bless!

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