Business structure? Business name? Other considerations?
When it comes to deciding the legal structure of your business, you have plenty of choices but which would suit you best?
Practical Considerations
Business Status
(Limited Company/sole trader etc.)
The most common forms of enterprise structure are:
Sole Trader, Partnership, Limited Company, Limited Liability Partnership & CIC/Charity
For most people, the reason for choosing a particular business structure will depend on its size, trading methods and liabilities likely to be incurred. An overview follows but professional advice is also recommended.
Sole Trader
Sole trader is the term used for a “one-person” business with or without employees. You do not need to register the business although you do need to notify HMRC to avoid incurring a fine.
You are personally liable for all your business debts; if your business fails, both business and personal assets will be used to pay off the debts.
- The very latest you can register with HMRC is by 5 October after the end of the tax year for which you need to file a tax return.
- You will be issued with a Unique Taxpayer Reference Number (UTR)
- You must submit a self-assessment tax return for each financial year
- The deadline for online filing is January of the following year BUT prepare your end of year accounts MUCH EARLIER!!
- Tax and NI (class 2 and class 4) are payable in the following January (you may also have to pay money on account for the following year)
Pros
- Simple registration
- Inexpensive
- No need for accounts to be audited
- Lower National Insurance contributions
- Losses can be offset against future profits or other income
- Tax treatment of capital gains is better than for a limited company
Cons
- Personally liable for all business debts
- May not sound as “professional”
- Some National Insurance benefits are not available Could be paying higher rates of tax
- Options are limited when it comes to raising money
Partnership
Sole trader is the term used for a “one-person” business with or without employees. You do not need to register the business although you do need to notify HMRC to avoid incurring a fine.
You are personally liable for all your business debts; if your business fails, both business and personal assets will be used to pay off the debts.
How to Register
You can find out more and register as a Partnership at:
Pros
- Can spread the risk
- Additional/complementary skills
- Can involve a spouse or other members of family or close friend
- Potentially more finance is available
- Can take on additional partners, i.e. bring in extra/complementary skills
Cons
- Could be responsible for all debtors of partner(s)
- Need to draw up a partnership agreement
- Could fall out with partner(s)
Limited Company
In a limited company, the personal liability of the owners for the debts of the company is limited to the nominal value of their shareholding i.e. other personal assets are not liable. The company is a separate legal entity and therefore, can sue and be sued just like a person.
You are not “self-employed” in a limited company, but employed by the company as a director. The directors as employees, therefore, pay tax under PAYE and National Insurance deducted from their earnings.
Pros
- Shareholders are not personally responsible for the debts of the company
- May give a more professional image
- Changes in shareholders do not affect continuity
- Ownership can be made separate from management
- Company can sell shares to raise capital
- Possibility of company pension scheme with more benefits
Cons
- Annual auditing required – unless small enough for exemption
- Annual accounts must be submitted to Companies House
- Shareholders cannot apply assets to personal use
- Shareholders cannot withdraw funds at will
- Companies generally prohibited from making loans to directors
- Tax payable under PAYE and corporation tax
- Higher National Insurance contributions
- Annual meeting of members is compulsory
- Tax losses cannot be set against personal income
Other types
There are other types of enterprise structures although they are not as common among start-ups as those already described.
Community Interest Company (CIC)
A CIC is a not-for-profit organisation designed for social enterprises that wish to use their profits and assets for the public good.
A Limited Liability Partnership (LLP)
Allows partners to admit one more limited partner who is liable only up to the amount of capital which they subscribe but cannot take part in the management of the business.
A Public Limited Company (PLC)
Is a limited company which has decided to allow its shares to be traded publicly, usually via stock markets (known as a “flotation”). In all other respects it has the same structure as a limited company.
A Company Limited by Guarantee
Has no shares; instead each member guarantees to pay up to a pre-set amount (usually £1.00) in the event of the Company ceasing to trade.
As there are no shares, profits cannot be distributed except by payment to employees. This structure is best suited to not-for-profit organisations such as social enterprises and charities, clubs and associations.
Charity
A Charity is a not for profit organisation, which is formed on the basis of an agreed constitution and that provides free services and support to its beneficiaries. Charities must register with The Charities Commission.
Co-operative
An enterprise owned by its members – which include directors, staff and is governed on the principle of ‘One Member, One Vote’.
Other Considerations
Business name – Decide on your name and establish availability.
It is often harder to name a new business than we think. It seems like you should be able to come up with something catchy and run with it, but it isn’t that simple. You must investigate the possibility that someone else has already chosen the name, and, if so, what their rights are to use it in the area/market you will be serving.
- Look in your local directories
- Undertake a ‘Google’ search
- The Companies House website offers a search facility:
www.gov.uk/get-information-about-a-company - Check to make sure that your domain (website) name is available
Location – work from home, office or business premises?
Deciding where to run your business could be determined by the nature of your work. Running a restaurant from home is probably not a good idea and a window cleaning business is unlikely to need swanky offices!
Read more online: Business premises – What are the choices?
Insurance – Make sure you have adequate cover in place.
For peace of mind, please carefully consider whether your business needs insurance. It is one of those costs that sometimes can be ‘saved’ but then prove costly later.
Read more online: What insurance should I consider as a start-up?
Licenses/Permissions – Identify what you need and put in place.
Some types of businesses do need to obtain special licences before they open for business.
Fylde Council’s Licensing Team will provide you will all the advice you require
Intellectual Property – Do you need to protect your idea/product?
Some common types of intellectual property rights (IPR) are trademarks, copyright, patents, industrial design rights, and in some jurisdictions trade secrets: all these cover music, literature, and other artistic works; discoveries and inventions; and words, phrases, symbols, and designs.
Data protection
The General Data Protection Regulations (GDPR) is the toughest privacy and security law in the world. It imposes obligations onto organisations, so long as they target or collect data related to people in the EU.
Read more online: Guide to the General Data Protection Regulation (GDPR)
Business banking – set up your bank account.
There is no legal requirement to set up a separate bank account as a sole trader BUT it could be a very good idea. It can be a simple current account with a different name but do check charges and terms.
Law – are there any legal implications/requirements?
You should be aware of the laws that relate to your sector and to running a business generally. The over-riding rule is that prevention is better than cure – make sure that you do not break the law by finding out what you need to know BEFORE you start to trade.
Commercial law can be complex and we would strongly advise you to contact a local lawyer before committing yourself to any legally binding contracts.
Staff – Do you need to employ staff?
If you are to free yourself from having to do everything in your business, you will have to either outsource or consider taking on staff.
Read more on employing staff here.
Planning – Are the premises you are wanting to work from suitable?
Fylde Council’s Planning Team have a variety of online information concerning conservation areas, historically listed buildings, access to the County’s Highways team. You should always speak with them on things such as Tree preservation, window design and change of window material, shop front signage design and other issues which at the time you may feel do not need permission, but later could find out that you do!
Environmental Protection and Health and Safety
Everything from carbon reducing innovation, drains and swerage, waste disposal, noise Fylde Council’s Environmental Protection Team can help you get sorted. The Health and Safety Inspectors may also give you advice on health and safety or make sure you are providing suitable welfare facilities, such as running hot and cold water and toilets as well as meeting statutory regulations for customer safety.
Business Rates is the everyday name given to what is properly called National Non-Domestic Rates and is a tax on non-domestic properties. It is the way local businesses and occupiers of other non-domestic properties make a contribution towards the cost of local services. The amount of the tax is set by the Government and collected by Fylde Borough Council. The rates collected locally are then divided between the Government and Fylde Borough Council. Have a business at home, have a small business, a shop and not sure if you need to pay? We have more information here for you.
Food, Drink, Hospitality Businesses
Whether you are a food truck, a cafe, hotel, market stall, gin distiller, online food seller, grovery store or food manufacturer, anything that the public consumes attracts scrutiny at the next level (and certain pets too!). It is therefore absolutely essential that your business is registered with Fylde Councils Food Safety Team. Before creating a food or drink business, read back through the start up information we have created and pull your ideas together. Then use the Let’s Talk form and we can ensure you get the very best support for your business and make things far easier to manage.
