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There are many ways of owning a business however the three methods listed below are the most common.
Sole traders can start trading straight away, although you may need a licence to trade. If you are trading under a name other than yours you must display the name and address of the owner and the premises on the company stationery.
To set up you must register as self employed. The positive side to this is that as the owner your word is final and all profits belong to you, however the downside is if the business fails, you will be fully responsible for all the business’ debts.
Worth noting, even if you don’t draw profits you will still be taxed although losses can be offset against tax on other income.
Partnerships can also start trading straight away you just need to check if you need a licence to trade. If you are trading under a name other than your own you must display the name and address of the owner and the premises and on your stationery.
To set up you must register as self employed, it’s also wise to seek the advice of a solicitor and form a ‘deed of partnership’. As partners you share responsibility for controlling the business, and all profits are shared between partners (as agreed within the deed of partnership) however if the business fails, you will also be jointly responsible for all the business’ debts. Worth noting, even if you don’t draw profits you will still be taxed although losses can be offset against tax on other income. The partnership is dissolved if one of the partners becomes bankrupt, resigns or dies.
Unlike sole traders and partnerships, as a limited company you cannot start trading straight away. You may also need a licence and the business name must include the word Limited or Ltd at the end.
To set up you need to register with the Registrar of Companies at Companies House.
As shareholders your personal assets are protected if the business fails. You can only lose what you have put into the business (limited liability). The business is controlled by the Board of Directors who are held personally responsible for its management and must act in the company’s best interests.
Capital is raised by the sale of shares, although not to the general public and profits or dividends are paid to the shareholders. The Directors are employed by the company through the PAYE tax system.
The company is a legal entity and can be sold, or you can buy shares in other companies.
Starting a new business can be a daunting prospect however there is plenty of support available for you.
Your business plan is a key document that describes your business, your objectives, your market and your financial forecasts.
Get to know the legal requirements involved to avoid any complications in the future.
Get to grips with VAT and the required insurance protection your business needs.