Limited Company? Partnership? Sole Trader? Social Enterprise? Making up your mind about the legal status of your business will depend upon how much you wish to protect yourself from risk, how many people are involved in your venture, and how you wish to be seen by the big wide business world.
This page gives you an insight into the differences between each option.
Sole Trader
The simplest way to start up is as a sole-trader. Essentially, your business income is counted alongside your existing personal income, so the accounting side of your business will be very straightforward. There are fewer administrative duties to be performed and the accounting side is simpler than under limited company status.
As a sole trader, you can quickly adapt to changes in your business with minimal bureaucratic changes required and you have complete control over your business and accounting affairs. However, a sole trader is also ultimately responsible for any liabilities should anything go wrong. It is worth spending time considering which set-up company format is best for you.
Did you know? High Street retailers SOLE TRADER are actually a Limited Company!
Partnership
If two or more people wish to go into business together, a partnership offers a simple way to get started, similar in many ways to the sole trader option for an individual. A partnership has no legal status, it is merely a vehicle linking the partners in a simple business structure.
A Limited Liability Partnership is similar in some ways to a standard Partnership, except that the individual members have lower liabilities to any debts which may arise from running the business. There are more administrative duties involved. In fact, an LLP is more similar to operating a Limited Company.
Top Tip - partnerships are notorious for disagreements - even between former best friends. It is wise to create a detailed PARTNERSHIP AGREEMENT before you start trading. This will help establish the ground rules including who does what and when!
Limited Company
The most common form of business structure, the limited company status means that the shareholders risk is limited to the amount that they have invested in the company. It is a separate entity for income tax and legal purposes. The company usually elects a board of directors to run the business. There are more accounting and administrative rules than for a sole trader.
Did you know? As many as 350,000 new Limited Companies are incorporated every year. You can see if your preferred company name is still available at: www.companieshouse.gov.uk/webcheck
Social Enterprise
Social enterprises are businesses with a social purpose working to deliver lasting social and environmental change.
There are many social enterprises operating in a wide range of industries from farmers markets and recycling companies to transport providers and childcare.
According to figures from the Governments Annual Small Business Survey and existing data for the social enterprise sector, there were at least 55,000 social enterprises in the UK with a combined turnover of £27billion per year.
For "A guide to social enterprise" (pdf) visit www.socialenterprise.org.uk
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