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New Year, New Structure? Getting The Right Business Structure For You.

New Year, New Structure? Getting The Right Business Structure For You.

New Year, New Structure? Getting The Right Business Structure For You.

Date: January 19, 2017

Whether you’re just starting your own business or have been trading for a while, it is always worth thinking about your business structure. Does it give you the protection you need, the flexibility and privacy you want and the tax structure that is best? Here is a quick run-down of the main types of business structure we have in England and Wales and their main characteristics:

Limited Company

  • The structure that most people associate with “proper” businesses. There have been over 10 million registered companies set up in England and Wales since we started keeping count!

  • A company is a legal person in its own right. This means that it owns the business (and any property) and you own the shares in the company. This can cause problems when people use the money of the company as their own personal piggy bank.

  • A company gives you “limited liability”. This prevents you from being personally liable for the company’s debts (subject to few exceptions, such as where you have given personal guarantees). You stand to lose what you put into the company, but not your personal assets.

  • Your accounts have to be filed every year with Companies House, along with details of the ownership of the company.

  • A company pays its own tax and is a separate taxable person. This means that if you are considering using a company, you should take tax advice.

Public Limited Company

  • Not just for listed companies (although it is a popular misconception which people play on to make their business seem a lot bigger than it actually is!). Exactly the same as a limited company, expect that it must have a share capital of £50,000 or more (ordinary limited companies can have a little as £1).

Partnership

  • Very informal. A partnership is created automatically by law when two (or more) people go into business together.

  • Each partner is responsible for their own tax on their share of the profits of the business. This is not just the money which is drawn out, but any profit the business makes.

  • All of the partners are responsible for all of the losses and liabilities of the business. Creditors of the company are not obliged to go after all of the partners – if they choose to only go after one, that one partner will be responsible for all the debts, not just his own share.

  • There is no obligation to file accounts with Companies House.

Sole Trader

  • Very similar to a partnership, but with only one person. You are entirely and personally responsible for the debts and liabilities of the business.

Limited Liability Partnership (LLP)

  • A bit of a hybrid of a partnership and a limited company.

  • You get “limited liability”, so you are not personally responsible for the debts and liabilities of the LLP (save for a few exceptions).

  • You have any obligation to file your accounts and ownership details every year with Companies House.

  • Tax transparent – this type of structure is taxed as partnership, so each partner is responsible for their own tax and the LLP is not taxed in its own right.

Different structures are right for different businesses, depending on their turnover, ownership, privacy requirements and industry sector. It is a complicated decision, which you should only take with detailed advice. At Coles Solicitors, we can advise you on the different types of structure available, working with your accountants to make sure that it is best structure for you, financially and legally.