So, you’ve decided to go for it and start your own business. But do you know which business structure is the right one? It’s one of the first important decisions you will make on your start-up journey.
The business structure impacts the tax you’ll pay as a business owner, as well as the goals you set and money you’ll earn. Due to the importance of the business structure, it’s worth taking the time to look through all the options available to you. At Turner Little, we can advise you in the best structure for your needs. In the meantime, take a look at our breakdown of the options below:
Sole proprietorship
This is the simplest way to operate a business and doesn’t cost much initially. You will be operating the business on your own and as such are considered legally solely responsible. While you can hire other people, you must follow the rules and regulations associated with being a sole proprietor and employer.
- Benefits: The main benefit for this business structure is the ease of getting up and running as a business operator. And, once the business is underway, you don’t have to answer to anyone else. For example, you won’t have to take your ideas to board members to approve, you’ll simply be able to get on with making changes. There are also no initial start-up costs and once you’re registered you can make a website, print some business cards and you’re on your way.
- Concerns: The increased liability of being the sole proprietor is one of the main drawbacks of this structure. You alone will be accountable for any business debt incurred. And, if the business fails to repay any debt, your assets will be up for grabs.
Partnership
As a business expands, most sole proprietorships end up as partnerships. This is where two or more people form a business together. Every individual involved as a partner is accountable and has equal responsibility for the business. This means that the liabilities are equally shared, and so are the profits. A partnership agreement is drawn up at the start of the partnership, legally laying down all the details of potential scenarios.
- Benefits: A partnership is simpler and cheaper than other options but is different to a sole proprietorship as there is scope to raise more capital.
- Concerns: You will be responsible for all business debts, regardless of which partner is associated with them. It’s vital to choose a partner you trust and can work with. As liability falls on all of the management, your assets are still exposed under this structure. Tax payments increase for every partner, and it can be difficult to wind the business up.
LTD (Limited Company)
Turner Little, as a company formation agent, can register a Limited Company, which is often seen as a more credible structure than sole proprietorship or partnership. The main difference is liability. With Limited Company, owners are only liable for business debts to the extent to which they invested capital initially.
- Benefits: Risk is controllable, and you can protect your assets. In addition, taxation is favourable as owners are taxed as employees of the business.
- Concerns: Regulation and compliance is much more complex for Limited Company. This will mean a lot of time, effort and working hours will need to go into compliance. The businesses financial reports must be public, which again brings more accountability.
LLP (Limited Liability Partnership)
An LLP is a combination of an LLC and a partnership, in which members must register as self- employed but are liable for business debt to match their investment.
- Benefits: Liability depends on how much capital was invested, which gives flexibility to the structure. Partners can protect their assets and there are opportunities to raise more capital with more members.
- Concerns: Profit earned is taxed as personal income, which means partners must disclose their income. You also have to trade within a certain timeframe after the company name is formally registered.
The final word
The structure you choose will depend on the kind of growth you are anticipating and how you want to manage the liabilities associated with it. Contact Turner Little to discuss your options in more depth before you make a final decision.
About Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.
