Starting A New Business - Which Structure Is Right For Me?
You have a plan for a new business you want to start, but now it’s time to choose which business structure you want to use.
There are three main structures you can use when you’re starting your business, and which one you choose will depend on your circumstances and how you plan on trading.
Registering as a limited company
When you incorporate your company through Companies House, it is a separate legal entity from yourself.
This can be a good thing because everything, such as finances and responsibility, is separated. This means that any debts belonging to the company are the company's responsibility and not yours, so you can’t be held responsible unless you have personally guaranteed them.
This separation is known as limited liability and is one of the main reasons owners opt for a limited company structure.
However, there are more reporting requirements and legal obligations that come with this structure. So you will have to weigh up whether it’s worth the time investment to have the added protection in place.
Registering as a sole trader
If you find that registering as a limited company isn’t the right fit for you at the moment, then the next alternative is to trade as a sole trader.
The main drawback of this structure is that there is no legal separation between you and the business. While it’s recommended, you don’t even have to have a separate bank account if you don’t want to. But this also means that you will be personally liable for any debts accrued by the business.
However, there is a positive of this structure in that you can keep all of the profits you make, rather than having them belong to the business.
Registering as a partnership
If you’re going into business with another person, this may be the best structure for you. Both you and your partner will be classed as self-employed with the same risks as a sole trader. However, all of the responsibility for the business is shared between you and your partner. These responsibilities are typically outlined in a partnership agreement.
While this may sound as though it’s a more complex structure to use, you can benefit from having a shared workload and responsibilities.
What do I need to do if I register as a limited company?
As mentioned earlier, there are additional legal requirements if you choose to register as a limited company. As a director, you will be responsible for the following when it comes to Companies House:
- Filing an annual confirmation statement
- Filing your accounts annually (even if the company is classed as dormant)
- Notifying changes to the company’s registered office
- Reporting changes to your personal details, as well as details of your company’s officers
- Notifying of changes to the allotment of shares
- Registering any charges against the company, such as a mortgage
- Reporting changes of personal details of any people with significant control (PSCs)
While this may sound as though it’s a lot to keep on top of, it’s worth remembering that you will also have obligations towards HMRC.
Because of these requirements, you shouldn’t take being registered as a limited company lightly, as you can be fined if it’s found you’re failing to keep on top of your legal obligations.
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