Business Structures - An Introduction

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Business structures are defined by the law of the land where you intend to operate.
They are far from being 'world-wide' These pointers are intended only as a part of your initial 'thinking it out' concerning your business.
Sole Trader The simplest structure under UK law and does not require you to register with companies house and you need only keep informal records of your financial transactions.
You will have to register with your local HM Revenue and Customs (HMRC) office as 'self-employed' and this will result in their setting up your National Insurance files and sending you the appropriate tax forms when the time comes.
As a sole trader all the profits are yours but you are personally liable for any debts.
Few banks will lend significant sums to sole traders.
There is no separation between your personal and business affairs.
Partnerships Are in effect two 'Sole Traders' combining their resources.
There are obvious advantages but the partners are jointly (but not severally) liable for the debts and liabilities of other partners.
Limited Liability Partnerships Are corporate entities where the assets and liabilities of the partnership stand separate from the partners.
A Limited Liability Partnership (LLP) can hold assets and enter into contracts.
The partners in a LLP are taxed as being Self Employed.
Limited Liability Companies Create a clear separation between you (the subscriber) and the company.
Your liability is normally limited to the investment you make and any guarantees you have given (as a private individual) to secure loans etc.
Limited Liability Companies have to be registered with Companies House and to present annual and audited accounts.
You will normally become an 'employee' so the company will have to run a payroll account in a form acceptable to the Revenue Authorities, and you will have to submit your own PAYE returns.
The Limited Company structure offers obvious advantages over the other business structures but is more expensive and time consuming to operate.
Making Your Choice The choice is not simple and in making in we must consider the future: what you plan to make of your business.
Partnerships are particularly difficult in this respect for when, a few years after the excitement of start-up, one partner wants to go one way, the other another the outcome can be messy.
At a smaller scale the sole trader may want to expend and once there are two of you are you a 'sole trader' still? You need to think it out, and once you've sketched in your initial plan, seek advice from friends and professionals you need your Network.
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