Sole Traders, Partnerships and Companies
There are a number of different forms that a business can take and there is no prescriptive method by which you can decide which one is right for you. Whilst there are other options, most new businesses start in one of three forms:
Sole Trader
This is the simplest way of starting a business with very few formalities. You will need to advise the Inland Revenue that you are self-employed for tax and National Insurance contributions. They will provide the relevant guidance booklet and notification form upon request.
Control of the business will be entirely yours and you will be responsible for all management decisions. You will, however, also be personally responsible for any debts that you incur and, should your business fail, any personal assets that you have can be seized and sold to repay those debts.
On the plus side, any profits that you make will belong to you. Moreover, whilst you have a responsibility to maintain proper accounting records for tax and VAT purposes, any records that you keep are not available for public inspection.
Partnership
If you are going to start your business with one or more other people you could form a partnership. In effect, this is the same as a sole trader with all the partners sharing responsibility for managing the business. The same applies to any debts of the partnership, in that each partner is personally liable.
In some cases, it may be necessary for a 'Deed of Partnership' to be drawn up. Whilst this is not required by law it can be useful to resolve disputes or where, for example, the profits of the business are not to be shared equally. You may also consider the option of establishing your business as a limited partnership. Whilst the basic concept of limited partnerships has been available for some time, new legislation has been introduced to widen the scope of such partnerships. You will need to seek specialist advice from a solicitor. You can also obtain guidance notes from Companies House free of charge.
Company
There are four main types of company:
- Private company limited by shares - members' liability is limited to the amount unpaid on shares they hold.
- Private company limited by guarantee - members' liability is limited to the amount they have agreed to contribute to the company's assets if it is wound up.
- Private unlimited company - there is no limit to the members' liability.
- Public limited company (PLC) - the company's shares may be offered for sale to the general public and members' liability is limited to the amount unpaid on shares held by them.
By far the most common limited company established by new businesses is the first example, a private company limited by shares. Whilst you can form a limited company yourself, the easiest way is to purchase one 'off the shelf'. Ready-made companies are available from company formation agents whose names and addresses appear in the Yellow Pages. There are also numerous advertisements in the business section of the quality daily newspapers.
The following may also be of interest to you:
Presenting a Business Plan | Investing in Stocks and Shares | Setting Up a Coaching Business | How to Buy a Business
