Whichever company structure you choose for your business there are slightly different ways to register...
When you start your new business you will need to decide what legal structure you want to trade under. There are lots of reasons why people decide on a particular format, whether that be as a sole trader, a limited company, or a partnership. There are also other ways to register or incorporate your business such as through umbrella companies and franchises. Here is some information to help you make a decision when it comes to registering your business.
As a Sole trader
If you are running your own business as an individual or a self-employed entrepreneur, then you can register as a sole trader. Becoming a Sole trader is the quickest and cheapest way to legally register your business. However, as a sole trader, you will be personally liable for any business debts or liabilities.
Registering as a sole trader
As a sole trader you are required to register with HM Revenue and Customs (HMRC). You will be expected to keep financial records of your business income and expenses, and each year you will be required to complete a Self Assessment Tax Return. However, if your yearly turnover is more than £83,000 then you must also register for VAT, less then this amount is optional if you want to register early, some people choose to register early as it gives a good impression and also you are able to claim back on your tax liabilities.
Becoming a Limited company
When setting up a limited company you will find that this process involves more paperwork and admin, however, there are some benefits to becoming a limited company as your own personal finances and assets are separated from your business debts and finances. Choosing this business framework should mean you will become a director and shareholder in your business as an employee, so your personal assets are safeguarded against any business liabilities.
There are several types of Limited companies such as:
Private & limited by shares (LTD)
LTDs are private companies limited by shares which mean that company shares are divided and distributed amongst shareholders with an equal cash value. If you are an individual, you may only have 1 share so would own 100% of your company shares.
You can not sell the shares of a private limited company on public markets, and the monetary value of a shareholders’ stake could increase or decrease depending on the companies’ overall market share in other words how successful they are. This would also apply if you are an independent business person operating under a limited company structure.
Private & limited by guarantee (LTD)
Unlike other limited structures companies set up as Private and Limited by Guarantee usually have members who act as guarantors rather than shareholders. The members of these companies must agree to pay out a nominal amount if the company ever went bust. This company formation is mostly set up by charitable organizations.
Public limited company (PLC)
A PLC is usually a company with shares which are traded on public markets such as the FTSE100 and NASDAQ for example. More often a private company limited by shares can offer their shares for sale to the public when the company hits a certain success rate, then the company’s shareholders usually make a significant profit in doing so.
If you are a freelancer or contractor, you should still consider setting up as a limited company as there are many benefits in doing so, for example:
- • You will have Limited liability so your personal belongings will not be affected if your company happens to go bust, you will not be liable for any of the company debt.
- • It is much better for you regarding your tax contributions as company taxation rules mean that you keep much more of your income as you will be able to claim back on the tax that you pay on items to run your business, or will be tax-exempt in some cases for purchases that you make for the company.
- • Being limited is a more scalable option, if your business expands it is much easier to employ people and to distribute the company shares.
Is a limited company right for my business?
You will have to keep accounts no matter what type of business you create but you may find the benefits of tax relief appealing although you might need an account to file your tax returns on your behalf.
Registering as a limited company
If you decide to set up as a limited company, you must register (or ‘incorporate’) your business with Companies House. You will need to provide a number of details, such as:
- • The name and address of your business,
- • You need at least one director and one shareholder.
- • You will also need to provide them with articles of association which lays out how the company will be run.
- • Along with a memorandum of association which contains the business details and directors’ signatures.
Setting up a Partnership
A partnership is what it says in the name, a partner or partners will all share a portion of the business. Partners or the business are responsible for paying tax on their share of the profits and will be personally liable for their share of any business debts...
Registering as a partnership
Just like a sole trader a partnership must be registered with HMRC. A partnership Self-Assessment tax return must be completed each year, also each partner must also complete a Personal Self-Assessment tax return. Once the turnover is more than £83,000 the partnership must register for VAT.
Limited liability partnership
Just like a Limited Company, a Limited Liability Partnership does not hold its partners personally responsible for business debts. However, partners of the company still pay tax on their share of the profits.
Registering as a limited liability partnership (LLP)
A Limited Liability Partnership should be registered with Companies House. You will be asked to provide the business name, registered address, the names of at least two directors and an LLP Agreement which explains how the business will be run. Just like other limited companies, a partnership must also be registered for self-assessment with HMRC and for VAT once turnover exceeds £83,000…
How soon should you register your business?
Limited companies and Limited Liability Partnerships have an obligation to register with Company’s House in order to become incorporated. This should be done before you start to trade as a business
As a sole trader or unincorporated partnership you must register with HMRC within three months of trading.
Remember we are here to help you, we can register your business for you and there are also many companies online who provide company formation packages.
However, with BusyStartUps we can register your business get you online and handle all of your marketing requirements as well.
You can also check with the current UK requirements via the government website (.Gov)