Which Structure is Most Suitable For My Business?

Setting up a business is one of the most challenging and overwhelming tasks a person can undertake – if it were easy, everyone would do it! However, when you taste success, the ‘return on investment’ feeling will be like being on cloud 9.

Unfortunately, the majority of start-ups fail within the first five years. Whilst this can be due to various factors, you will want to do all you can to prevent it from happening to you.

One of the main concerns that you will have is selecting the right business structure. The optimal structure for you is different on a case-by-case basis. In this article, Jackson Longe’s business law solicitors outline each business type and the benefits and responsibilities associated with each.

– Limited Company

Limited companies are legal entities in their own right. As a shareholder of a limited company, your liability is limited to the capital you put into it (known as limited liability).

All companies must be registered with Companies House, and all company Directors are bound by strict legal obligations, such as filing audited accounts.

Limited liability does not apply in cases where Directors have agreed to implement personal guarantees, in which case liability will increase.

– Partnership

By establishing a partnership, the partners involved (2 or more) are personally responsible for debts and obligations. Partnerships are not legally required to prepare formal documents (accounts). However, most partners see the benefit of doing so.

A partnership is typically established by signing a partnership agreement covering critical aspects of the business arrangement. Ownership and profits are usually split evenly among partners; however, any disparities would be disclosed in the agreement.

The only legal requirement for establishing a partnership is that it must be registered with HMRC, and each partner must register for self-assessment and complete a separate tax return.

– Sole Trader

This is the simplest business structure to establish. Sole traders make all of the decisions and run the business. They are also personally liable for all debts, liabilities and obligations, meaning they have unlimited liability.

Sole traders are not required to register their business on Companies House. However, accountancy records must be kept, income tax paid, and a self-assessment return with HMRC every tax year must be completed.

Excluding the above, there are no legal formalities that must be completed to commence trading.

Company Formation Advice

In all cases, seeking the appropriate legal advice when setting up a business is vital. Read some of our recent articles for more.

– Other types of business

Public Limited Companies – These are organised via stock shares intended to be freely traded on a stock exchange or in over-the-counter markets. Anyone can buy shares in the company’s stocks. Before a PLC starts business, shares must have been allotted to a total value of at least £50,000.

Private company limited by shares (LTD) – A company that cannot be owned by any members of the public. Instead, it is owned by a non-government organisation (NGO) or a small number of shareholders. The sale of company shares is handled privately rather than on a stock exchange.

Company limited by guarantee – Individuals are not responsible for a fixed sum based on their investment. Instead of shareholders, there are typically members who act as guarantors and agree to contribute a nominal sum towards the winding up of the company if this is necessary.

Unlimited company (Unltd) – In this case, there is no formal restriction on the amount of money shareholders are liable to pay if the business goes into formal liquidation. If this happens, shareholders are responsible for ultimately settling the company’s outstanding financial liabilities, regardless of the level of investment they made.

Solicitors for Company Formation Richmond

At Jackson Longe Solicitors, we provide astute legal advice and can draft agreements, policies and documents to address your immediate and ongoing business needs.

Our lawyers can assist, negotiate and draft agreement terms with co-founders, investors, employees, suppliers and customers. Whether you are a new start-up or an established business, we will work with you to design bespoke and relevant documentation, ensuring a smooth-running and efficient workplace.

To speak to Jackson Longe’s professional business law solicitors today regarding your company, please call 020 332 2069 or email info@jacksonlonge.com.