Choosing a Business Structure
Starting a business means deciding on a business structure. Most importantly, you’ll want to choose a business structure that suits your startup’s needs. Firstly, consider your options and weigh up the pros and cons for each business structure. It’s important that you choose a business structure based on a balance between the benefits and legal protections. Ultimately, it’s your decision, but remember it’s one that will influence your day-to-day operations. In addition, what taxes you need to pay and whether or not your personal assets are at risk.
As a startup in the UK, you have a few business structure choices. These include; Sole Trader, Partnership, Limited Liability Partnership (LLP) or Incorporating a Limited Liability Company (Ltd). Before deciding on a business structure, let’s look at each in a bit more detail and weigh them up.
As you can see from the table, as a startup, you have x4 different business structures to consider.
Choose a business structure whilst also thinking about the future. The choice you make now could affect how your business grows, but also dictate additional work further down the line. For example, starting with a partnership means shared business decisions and responsibilities. The same applies with incorporating a limited company, but a limited company means your personal assets aren’t at risk, should things go belly up.
Depending on your startup, the set up costs and registration fees aren’t that high. Most importantly, please make an informed decision, based on what makes you feel comfortable and what feels right for your startup. Balance the pros/cons with your future plans.
Deciding on a Business Structure
Each of the x4 legal business structures have their own advantages and disadvantages. First and foremost, when deciding on a business structure, take into account the size and nature of your business.
If you’re a one-person business, not looking to grow much and you fall under the 40% tax threshold anyway, deciding on a business structure might be easy. For example, being a sole trader involves no registration costs, you maintain control and management and tax is limited according to the prevailing thresholds. However, you’re more exposed and your personal assets are liable if you get into debt.
A partnership has similar advantages and disadvantages to the sole trader structure. However, management and responsibilities are shared, but tax and NI contributions also change.
Most importantly, do your research in conjunction with this startup business advice. Whilst a limited company means a bit more administration, as a startup and small business, it’s a material annual cost. Besides that, an accountant can look after annual account filing, confirmation statements and tax returns.
Typically, accountant fees start at around £500. In the scheme of things, this is money well spent if you choose a qualified accountant. A professional accountant mitigates possible mistakes and avoids late filing/payment fees through having a scheduled process. Consider this with possible tax advantages and all the pros/cons before deciding on a business structure.
The Government’s website also includes information to help you set up a business, including registration and licensing. Certain businesses may need to apply for licences, so carefully research what you need to do.
If you’re looking for expert startup business advice or coaching services, contact Maximum Solutions Consulting Ltd. You can also visit the Business Advisory Services London and Business Coaching London pages to find out more.