Choosing a Business Structure
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Choosing a Business Structure
It is of outmost importance that you choose the right Legal Structure for your Business . Choosing the correct Business Structure will play an important part as how your business is perceived and also may effect your legal responsibilities and Tax Implications.
Deciding on a Business Structure
Deciding which Business Structure is best for your business needs is a crucial decision and should be well researched before starting a business. It is important to understand the different business structures regarding their legal and tax implications as well as the perception of your business status.
The legal and tax implication which should be examined are as follows:
- Paperwork and administration that needs to be managed and filed yearly
- Taxes that must be paid to HMRC (HM Revenue and Customs)
- Strategy to withdraw money from business
- Degree of liability that you will personally be responsible for
Different Types of Business Structures
Operating as A Sole Trader
A Sole trader works for themselves and must notify HMRC when they start trading. This business structure is the quickest and easiest but not the most tax efficient. As a sole trader, your business and you are one legal entity and full legal responsibility rests with you which can be have its problems if debts are involved. Business profits after tax has been paid is yours. In addition, Sole Traders benefit from the least amount of administration with uncomplicated filing and compliance issues.
Starting a Limited Company
A Limited Company can be a Private Limited Company (LTD) or a Public Limited Company (PLC). It is a separate legal entity and the directors of the company have limited liability
It is one of the most popular business structures chosen by new business owners. The main benefit for business owners is that the business has its own legal entity. This means that the business is liable debts and not the business owner. However, there is a greater amount of administration involved especially in terms of accounts and deadlines.
If your business has a unique product or idea which must be protected you will have to apply for intellectual property to ensure that no copies are made of it without your permission.
Investing in a Partnership
Partnerships will allow business partners to form a business where company responsibilities and profits are shared. A traditional Partnership which treats each individual as a Sole Trader with regards to tax and liabilities. Or a Partnership known as a Limited Liability Partnership can be setup to benefit from corporate veil that Limited Companies normally benefit from.