As a new entrepreneur one of the first major decisions you have to make, preferably before you start trading, is what legal structure to use. Generally, you can choose this options: A Company, A Sole Trader, Partnership.
SETTING UP IN BUSINESS
As a new entrepreneur one of the first major decisions you have to make, preferably before you start trading, is what legal structure to use. Generally the following choices are available:
A CompanyA Sole TraderPartnership
Each structure has its own distinct advantages and disadvantages which require careful consideration and appropriate advice should be taken to ensure your business takes the most appropriate legal form to suit you depending on your circumstances. Items to be considered include: Your Personal circumstances The Type of Business you are considering Whether you wish to protect your personal assets from the outset Anticipated level of turnover Funding i.e. loans, personal investment, 3rd party investment etc. Enterprise funding when setting up a business, if and when approved, is generally paid over to a limited company structure.
While the immediate benefits of setting up a company are apparent, in that a company is a separate legal entity and its shareholders may have limited liability (depending on the type of company incorporated), there are other considerations to be taken into account.A Company requires a minimum of two directors aswell as a company secretary. The responsibilities of being a director should not be taken lightly. Failure to comply with company legislation can result in financial penalties, disqualification from acting as a director and ultimately the strike off of the company.
A Sole Trader is one of the most frequently used and simplest types of business structures. A Sole Trader essentially operates either in his/her own name or under a registered business name.In comparison to a limited company, the sole trader is personally liable for all business debt or legal actions against the business. However the advantages are that all decisions are made by the sole trader, business expenses incurred in running the business are allowable deductions against profits, all profits are kept by the owner without disbursement, no annual returns are required to be filed however tax returns are obviously still required).
A partnership is where two or more people agree to run a business together in which the partners share with each other the profits or losses of the business. A partnership business name must be registered and it is strongly advised that a formal partnership agreement is drawn up to govern the relationship.
Generally partners will be jointly and severally responsible for running the business and if it fails all partners are jointly and severally responsible for the debt. A limited partner can exist whereby they can contribute capital and not be held liable for the debts of the Partnership.
Similar to a sole trader the partners in a partnership generally assume full liability for any debts of the business.The above is a brief overview of the type of business structures available to entrepreneurs when starting a business. The ultimate decision will depend on an individual’s circumstances and personal decision.Should you have any queries in relation to the above please contact us at:
Cosgrove Gaynard Solicitors
1 Westland Square
Phone: 01 234 0044
Fax: 01 234 0047
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