Were you born a sole trader, destined to work on your own? Or would working in a partnership suit you better? Before you even start up your business, you have a decision to make. You need to decide if one of these options is better for you, or if a third option a ‘limited company’ would be best. Let us briefly take a look at the choices, and the main advantages and disadvantages of each one:
A sole trader basically means a one-person operation. If you are that person, you will own and run the business yourself. You are responsible for all aspects of operation, development and management. You own all the profits, and are responsible for all the losses.
If you become a sole trader, you must tell the Inland Revenue, and register for tax and NI. You must do this within three months, or expect a fine.
You don’t have to register with Companies House, which saves on fees and costs.
Paperwork, legislation, tax and National Insurance is simpler, and NI can be cheaper.
You are in total control.
All the profits are yours.
You are legally responsible for everything related to your business – products or services.
If things go wrong, you can be sued or prosecuted.
All the losses are yours.
If the business fails, your own assets and savings may be at risk.
If you have decided to go into business with one or more other people, this may be a good option for you. It’s rather like the Sole Trader option in many ways, but involving more than one person. Groups of friends who go into business often choose this option.
If you set up a partnership, each partner must tell the Inland Revenue. You must also display the names of all partners any printed matter or website/social media. It’s also wise to engage a legal professional to draw up a partnership agreement, setting out terms and conditions.
More people means more experience to draw on, and a larger pool of capital.
Partnerships offer flexibility, and you can form one to suit your own specific need and situation.
Like Sole Trader, you don’t pay fees and costs to register with Companies House.
Tax, paperwork and legislation is simpler.
Losses risks and costs are shared.
Members of the partnership are each legally responsible for all aspects of the business, services and products.
You have a shared legal responsibility for losses and problems. If the business gets into trouble, you can be sued or prosecuted alongside your partners.
Working together can lose you friends. A formal, legal footing for the partnership is the best way to avoid acrimony.
A limited company separates your own personal finances from those of the business. This means that if your business fails, your personal finances and property may not necessarily be at risk. Limited companies come in several forms – we go into more detail in a separate article.
If you would like more information about being a sole trader and partnerships, an ideal place to start is the GOV.UK website company structure page.
For more information on this subject email us at email@example.com or complete the form below, and we’ll try to help you onto the right path.