If you're planning to start your own business then you'll undoubtedly have a lot to think about. Which products or services will you offer? Who is your target market? What's the best way to promote your new venture? Another detail will concern the actual structure of your fledgeling company. Choosing the right legal structure will go a long way towards future-proofing your business and will depend on a number of factors, such as the size and scope of your business and your taxable profits. Each structure comes with different implications, responsibilities, liabilities, and each will have varying levels of protection and other benefits. PLC, partnership or sole trader, here's a brief description of each to help you choose the right one for you.
Sole traders are self-employed and own and run their business as an individual. Sole traders need to register for Self-Assessment Tax, submit an annual tax return and are solely responsible for their business debts. Once annual turnover exceeds £85,000, sole traders also need to register for VAT with their National Insurance Contribution levels depending on the annual turnover. Sole traders also face restrictions regarding how they name their business. They are not allowed, for example, to use the word 'accredited' in their company's name unless it's approved by the Department of Business and Industrial Strategy. This is because 'accredited' could imply they are connected to, or approved by, a department of government. It is also recommended that sole traders trademark their company name to stop other traders operating under the same title.
A business partnership is exactly that; one individual and at least one other (several partners are possible) share the responsibility for all aspects of the business. This includes profits, losses and expenses. Each partner pays their share of tax. One of the partners must register as the 'nominated partner' and he/she then becomes responsible for keeping business records and managing tax matters. The nominated partner registers the partnership with HMRC, while all other partners must, for tax reasons, register separately. Once turnover crosses the £85,000 threshold, the partnership must also register for VAT.
Private Limited Company
A PLC is a business structure whereby the company is a separate entity to its directors and shareholders. This means that the directors and management are financially separate from the PLC and that all after-tax profits go to the PLC. Private Limited Companies are supported by shareholders, with at least one director to manage the company. The following information must be provided to Companies House when registering a PLC: the number of shareholders, the number of shareholders with more than 25% voting rights or shares, a memorandum and articles of association, a business name and address, a SIC code. As soon as Companies House receives all the above information, the business can be incorporated.
That's quite a bit of information, so let's take a closer look at what it all means:
A legal statement agreeing to the formation of the company, signed by shareholders and which cannot be changed once the PLC has been registered.
Articles of Association
Rules which govern how the company will be run and agreed upon by directors and shareholders. The company may choose to write its own rules, but standard templates are available.
Standard Industrial Classification
A SIC code helps identify in which industry the PLC will operate, and the nature of the business being carried out.
A PLC needs at least one director. The company director is responsible for making sure accounts and reporting mechanisms are correct and accurate.
Shareholders are the owners of the limited company. There must be at least one and they are allowed to hold up to 100% of company shares. More commonly, shares are spread amongst a group of shareholders to limit liability and potential loss through poor performance. The number and value of shares are declared in a statement of capital.
Name and Address
As for sole traders, PLC's need to be registered at a UK address and they need permission to use sensitive words in their company name. Note that there is a distinction between a business name and a trading name. Business names are like websites, there can only ever be one. A trading name, however, can be a name that says something about what you do. For example, if you're selling wine and you want to call yourself Delicious Wines PLC, you'll probably find the name is already being used by someone else. But, all is not lost. You are still allowed to trade under that name, (as long as you do not fringe any copyrights) just be sure that you use your business name on all your official company paperwork, like invoices and letters etc.. Something like this is perfectly sufficient:
Delicious Wines is the trading name of Smith and Jones Wine Importers PLC.
Here are a few more sensitive words and phrases that require permission before you can use them:
Association, Assurance, Commission, Co-operative Society, England, Health and Safety Executive, Licensing, Nurse/Nursing, Northern Ireland, Ombudsman, Patent, Public Health Agency, Registrar, Society, Underwrite/Underwriting, University, Wales, Scotland, and so on.
PLC's pay a special rate of tax for which they have to register within three months of registering the company.
This is a completely different kind of organisation than the ones already mentioned. A social enterprise is a business that benefits people or communities. Charities, community interest groups and co-operatives all fit under the social enterprise umbrella. These businesses need to issue a community interest statement explaining the aims and goals of the company. They are also assessed by community company regulators.
Remember, getting your business off to a good start could mean the difference between success and failure so if you're in any doubt as to which form your business structure should take always seek legal advice. You can also check out the Gov.UK website for more up-to-date information.