Legal structures for new companies

Q: Which is the best legal structure for my new company?

A: When considering starting your own business one of the first decisions you will have to make is which legal structure is correct for your business.

It is essential to give this decision some consideration and take professional advice as not only will it put you on the right footing with HM Revenue and Customs and the authorities but it will directly impact upon the amount of Tax and National Insurance you pay, the records and accounts you keep, your financial liability, how the business can raise money and also about how management decisions are made.

Most people who start their own business will do so as a sole trader, this legal status is the most popular and effective for the majority of start ups.

The main reason for this is because the legal and accounting requirements are not costly or time-consuming and you keep all the profit. A sole trader is not required to register with Companies House but must be registered as self-employed.

Partnerships are also a relatively simple way for two or more people to set up a business.

The advantages of this are similar to a sole trader, as a partnership has no separate legal identity and does not need to be registered with Companies House. The partners are regarded as self-employed.

It is essential that you draw up a Deed of Partnership with a solicitor to establish the terms and conditions of the partnership.

However, in some cases, it may be beneficial to set up a business as a Private Limited Company. This is because a company has a legal identity separate to that of the owners, unlike a sole trader or a Partnership where there is no distinction.

Forming a company will give you the ability to limit your potential liabilities and enable the company to raise money (capital) by selling shares.

By operating as a company your business must comply with a wide range of legislation particularly the Companies Act and be registered with Companies House.

Paul Heyworth
Business Venture Group