Gardner Leader

Forming your business

You have had the idea that is going to make your fortune. Now you need to turn it into a business. One of the first decisions you are going to have to make is what form your business is going to take.

What is right for your business will depend on a number of factors and may need some input from an accountant as well as from us. The factors you will have to consider will include tax, potential liabilities, publicity (for example, filing documents at Companies House), administrative convenience (or inconvenience) and the image you want to present to potential customers and suppliers.

The main options are:-

Partnership – two or more people come together to own and run a business. Their liability to third parties is unlimited which means that personal assets as well as business assets can be at risk if things go wrong. Each individual is taxed on their share of the profits as a self-employed person. A partnership can be a very flexible format for a business with a lot of freedom to devise the partnership agreement to suit your particular needs. There is no requirement to file the partnership agreement or accounts at Companies House and so there is more privacy than with a company.

Limited Company – the company is a legal entity in its own right and if it is sued, it is generally only its assets which are at risk rather than the personal assets of those who own it – the liability of the owners is limited to their initial investment in the company. The company is owned by its shareholders and managed by its directors (who may or may not be the same people). The shareholders can receive dividends from the company as well as (or instead of) salaries. A certain amount of information, including accounts, has to be filed at Companies House and is open to public inspection, but for smaller companies the requirements are less than for larger ones.  It is sensible to have a shareholders agreement to regulate how the company will be run. The company will pay corporation tax on its profits and income tax will also be payable on any dividends or salaries taken out of the company.

Limited Liability Partnership (‘LLP’) – this is somewhere between the previous two options. The tax position is similar to that of a partnership but the members have limited liability similar to shareholders in a limited company. Some information has to be filed at Companies House but less than for a limited company. The partnership agreement can be tailored to the needs of the members.

It is possible to change from one format to another later. You could, for example, incorporate by transferring a partnership’s business into a limited company. However, this will be more complicated and expensive than choosing the most appropriate format at the outset and so it is worth giving this careful consideration at an early stage.

Both limited companies and LLPs need to set out various pieces of information on their business stationery and so it is wise to check these requirements before placing your stationery order.

We deal with many businesses of all kinds and so we can help you choose the right format and then get the necessary paperwork in place quickly and easily.

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