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Setting up a new business on your own is incredibly exciting, but many challenges can arise during the start-up process, which is exactly where we can help.
It’s important to seek legal advice before starting a business, in order to ensure you are choosing the correct business structure to serve your individual needs. Based in Yorkshire, our trusted team of solicitors can advise you on the different types of structures and vehicles used in the UK and the different commercial, legal and tax considerations you should be aware of.
What’s more, as your business grows, its structure may need to change - something our experienced legal advisors will be able to assist with. We will always take a long term, commercial approach when working with you to find the right solution.
We have extensive experience in helping out a range of start-ups across every conceivable sector. Contact us today if you have any questions or require legal support for your start-up business by calling us on 01484 821 500 or fill out our online enquiry form.
There are four main structures:
Here, we’ll explain a little more about each structure so you can consider which might be the best option for your start-up.
A sole trader is considered to be ‘self-employed’. You must therefore register with HM Revenue & Customs for income tax self-assessment. As a sole trader, you are responsible for:
You are liable for any debts in your personal capacity, which means that the assets you own, i.e. your home, could be in jeopardy if you accrue debt that you cannot pay. However, there are many positives to being a sole trader, such as easy-set up and low cost. A sole trader does not need to register at Companies House and is also in complete control of the business and can therefore retain any profits after tax.
A partnership is made up of two or more individuals, each being a partner. Partners personally share responsibility for the day to day operation of their business. Each partner must register with HMRC, as being self-employed and submit a separate tax return, although a ‘nominated partner’ is also required to register to manage the partnership’s tax return and has responsibility for the return and associated record keeping.
As a partner, you are jointly and severally liabile for the liabilities of the partnership. This means that whilst the liability should shared between you and the other partners you all remain primarily liable and a legal action could be brought against you alone. Partners share the business profits, and each partner pays tax on their share.
A partner does not have to be an actual person. For example, a limited company counts as a ‘legal person’ and can also be a partner, although. a partnership does not need to register with Companies House.
If you are to set up a partnership, it is crucial that you seek legal advice and have a solicitor draft a partnership agreement for your partnership. A partnership agreement outlines decision making, the division of liabilities, capital contributions, retirement and how profits of the business are split between the partners. Therefore, it is this document which will deal with a partner’s recourse against the other partners if they are the subject of legal action.
The key differences between a limited liability partnership and partnership is that with the former, the LLP model protects its members’ assets, limiting their liability to however much they have invested in the business.
A limited liability partnership needs to be registered at Companies House and must start to trade within a year of registration or it will be struck off. In a limited liability partnership there must be a minimum of two ‘designated members’ responsible for filing annual accounts.
As with an ordinary partnership, the members’ share of profit is taxed as income. Each member must register with HMRC as self-employed. There should also be an LLP agreement stating what share of the profit each member should receive and dealing with other matters, such as decision making, restrictive covenants and capital contributions.
A private company is incorporated and limited by shares. This means that the shareholders’ liability to the creditors of the company is limited to any money they originally invested. Therefore, a shareholder's personal assets are protected in the event of company insolvency, but money invested in the company may be lost.
Shareholders and directors are separate roles but can be performed by the same people. A
company’s directors run the company on behalf of the shareholders. Limited companies must register at Companies House and pay an application fee to be incorporated.
It is crucial to seek legal advice before you incorporate a company limited by shares. Our solicitors can advise you on the structure of the company and its articles of association, which is the document that sets out the rules which you must follow when running your company. It may be appropriate to have bespoke articles of association drawn and there should always be a shareholders agreement which governs the relationship of the shareholders and directors and deals with matter such as decision making, restrictive covenants and can also cover what should happen to a shareholders shares should they leave the company.
There are many positives to choosing a company limited by shares, however there is greater administrative responsibility with this type of structure; there are start-up costs, companies house filings (that can incur late penalties) and you must file annual accounts and those accounts are freely accessible to anyone as they are held in the public domain.
All of our solicitors have extensive experience in business structuring, so you can rest assured that you are in good hands from the very beginning. We are committed to providing you with easy-to-follow advice to simplify the process, taking the stress out of launching your start-up and allowing you to focus on the important things.
At Ramsdens Solicitors, we provide:
For more information around structuring your business, speak with our experienced team of start-up solicitors today. Simply call 01484 821 500 or fill out our online enquiry form and we will get back to you at a time that’s convenient for you.