The foundations for a successful business
If a new business is to get off the ground, it needs a structure and a format. Exclusive to the Weston & North Somerset Echo Somerset Chartered Accountant Robert Stone, a small business and tax expert, explains the importance of choosing the right structure for fledgling ventures in North Somerset
Once a new business opportunity has been identified, the next step is to consider the different structure options and their implications. It is well worth getting professional advice – either from an accountant or a solicitor – before committing to a particular structure. Because each one has its own advantages and disadvantages and ultimately your choice can affect:
* The tax/national insurance you will pay
* The type of records you will need to keep
* Your management decision making process
The different legal structures
This is the simplest and most popular way for a small business owner to start up. There is no formal registration process, except to advise the Inland Revenue that you are self employed.
You can trade in your own name and will be taxed via the Self Assessment scheme – tax will need to be paid twice a year in January and July, based on your profits.
You will be liable for Class 4 National Insurance on your profits and can employ people including your spouse and even your children for work done.
This is the next most popular way of running a small business and involves two or more people (maximum 20) carrying on business together with a view to making profit.
The partnership can operate under a trading name, but the names of all the partners must be shown on all correspondence. There is no formal registration process, but partners should inform the Inland Revenue that they are self employed.
It is advisable to have a written partnership agreement, setting out the terms of the partnership to avoid disputes later on.
Limited Liability Partnership (LLP)
An LLP is treated like a normal partnership for tax purposes, but has the added benefit of limited liability protection.
It is viewed as a separate corporate body and is set up through registration at Companies House. As with Limited Companies, there is public availability of accounts. Floating charges can be granted over its assets in its own name, which normal partnerships can’t do.
A Limited Company is usually established by businesses with a track record and it is set up through registration at Companies House.
It is a separate legal entity – the business is owned by the limited company and not you. You are the shareholder who owns the business and there must be at least one shareholder, as well as one director, who technically is an employee of the company.
Another type of business structure to consider is a franchise. This is where you own the business (the franchisee), but the name of the business is dictated by another business (the franchisor). Franchises are normally run to a particular format, with the advantage of using proven systems, support and training.
For further advice on choosing the right business structure, call Robert Stone on 01460 64717 or visit www.robert-stone.co.uk. FREE copies of The Small Business Guide by Robert Stone are available, just email: email@example.com