Cre­at­ing the right busi­ness struc­ture

The Peterborough Evening Telegraph - - Business - Ken Craig, Rawl­in­sons

Many peo­ple as­sume that every­one who has their own ‘busi­ness’ runs a ‘com­pany’.

How­ever the two words do not mean the same thing. There are ac­tu­ally four com­mon forms of busi­ness struc­ture:

A sole trader – this is the sim­plest way of start­ing and run­ning a busi­ness.

A con­ven­tional part­ner­ship – where you work with one or more part­ners in the busi­ness.

A limited li­a­bil­ity part­ner­ship – LLP – this pro­vides you and your part­ners with the pro­tec­tion of limited li­a­bil­ity, just as with a com­pany.

A limited li­a­bil­ity com­pany – this means that the busi­ness is quite sep­a­rate to youas a per­son.

The is­sue of whether to run your busi­ness as a com­pany or a sole trader or part­ner­ship is an im­por­tant de­ci­sion. And you may change your mind over time. If you want to move your ex­ist­ing busi­ness into a com­pany struc­ture this is called ‘ in­cor­po­ra­tion’. But what are the dif­fer­ences with var­i­ous busi­ness struc­tures?

Sole trader: The ad­van­tages of be­ing a sole trader in­clude in­de­pen­dence, ease of set up and run­ning your busi­ness, and the fact that all the prof­its go to you. The dis­ad­van­tages in­clude a lack of sup­port, un­lim­ited li­a­bil­ity, the prospect of pay­ing more tax on high prof­its and the fact that you are per­son­ally re­spon­si­ble for any debts run up by your busi­ness.

Part­ner­ship: The ad­van­tages in­clude its ease of set up and run­ning, and the range of skills and ex­pe­ri­ence that the part­ners can bring to the busi­ness. Prob­lems can oc­cur when there are dis­agree­ments be­tween part­ners. There is un­lim­ited li­a­bil­ity and all part­ners are each per­son­ally re­spon­si­ble for all of the debts that the busi­ness runs up. Again there is the prospect of pay­ing more tax on high prof­its thanif youhavea­com­pany.

Limited Li­a­bil­ity Part­ner­ship (LLP): LLPs re­tain the flex­i­bil­ity of a part­ner­ship with the added ad­van­tage that your per­sonal li­a­bil­ity is limited. Atleast twom­em­bers must be‘ des­ig­nated mem­bers’ –the law places ex­tra re­spon­si­bil­i­ties on them. The for­ma­tion of an LL P is more com­plex and costly than that of a con­ven­tional part­ner­ship. Prob­lems can still arise when­there are dis­agree­ments be­tween the mem­bers. Again there is the prospect of pay­ing more tax on high prof­its than if you have a com­pany.

Limited Li­a­bil­ity Com­pany: If you run your busi­ness through a com­pany your per­sonal fi­nan­cial risk will be re­stricted to how much you in­vest in the busi­ness and any guar­an­tees you have given in or­der to ob­tain fi­nanc­ing. You will also be­able­tore­tain more money in the com­pany after pay­ing less tax than if you op­er­ate as a sole trader or part­ner­ship. How­ever, you should re­mem­ber that this type of busi­ness struc­ture, more than any other, also brings a range of ex­tra le­gal du­ties.

We would wel­come the op­por­tu­nity to talk to you about your spe­cific cir­cum­stances.

We can help you to con­sider all the rel­e­vant fac­tors and choose the ap­pro­pri­ate busi­ness struc­ture.

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