Company Formations & Start-ups

Choosing the right business structure for your company is an important decision to make.

Choosing the Right Business Structure

Posted on 20/01/2016 by Janette Allen Team

Depending on which structure you choose, how much you pay in taxes, how much accountancy you are required to do, your ability to raise finance, and the personal liability you face should the company fall into financial difficulty will all be affected.

Here at Janette Allen Accountants, we offer specialist accountancy services for a range of business structures. We’ve explained these and their advantages/disadvantages below.

Sole trader

Setting up your business as a sole trader is the most common business structure for new companies. It is ideal if you are starting the business alone, as it only requires one individual to own and operate the business. Sole traders are responsible for calculating their expenses and income from the business, and must calculate how much self-employment tax is owed on their personal income tax return.

Advantages of sole trader structures include:

  • No registration fees
  • Easy, hassle free set up
  • Complete control over the business
  • Very little red tape to set up

However, there are some disadvantages of the sole trader structure.

These include:

  • The business and the owner have no distinction, so as the owner you will be personally responsibility for any business debt
  • Raising money for the business can be more difficult, as banks can be less inclined to give loans to individuals

Partnership

A partnership is the ideal business structure when two or more of you intend to own and operate the business together. From a legal standpoint, each partner must be registered as self-employed and put in a separate tax-return. However, it also useful to have a partnership agreement as to how liability is split, and what will happen should one of you want to leave. Partnership businesses can be either general or limited. A general partnership has shared management and responsibility for the company’s debts and obligations, whereas with a limited partnership, limited partners act only as investors, whilst the general partners operate the business and assume liability for its debts.

Advantages:

  • Flexible, easy structure for more than one business owners
  • Business will not collapse if one partner is sick or ill

However, there can be some disadvantages of a partnership, particularly if you do not have a set partnership agreement.

Disadvantages:

  • Shared liability, with each partner able to make decisions that can affect the finances of other partners
  • Risk of business breakdown should the partnership fail due to disagreements

Private company

A private company must consist of at least one member, and one director. Directors are responsible for making management decisions, but the shareholders own the company (directors can also be shareholders).

This is a more complex business structure, but has the advantage of separating the company’s financial liability from the personal finances of the owners of the company. This means that should the company fall in financial debt, the member’s liability is limited to the unpaid amount on their shares, or a pre-existing agreed amount.

Private companies must, however, pay corporation tax, submitting an accounts and company tax return to HMRC as well as making monthly payments of employees’ income tax, so there is a lot more accounting work with this business structure.

Janette Allen specialise in accountancy and bookkeeping for partnerships, sole traders, and limited companies. Whether you’re just starting up, or are an established business, our services can benefit you with our vast experience and tailored approach to each client’s needs.

For more information about the accountancy and bookkeeping services we offer, contact us today and our team will be more than happy to assist you.

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