Member Article

Choose the legal structure to give your business the best start

With Jill Lee of Business Link

If you want to get your business off on a proper footing with HM Revenue and Customs (HMRC) and other authorities, it is important to make sure you have the right legal structures in place that are best suited to the way you do business.

This is a crucial part of setting up any new business as it will affect a number of areas including the tax and National Insurance that you pay, the records and accounts that you have to keep and your financial liability if the business runs into trouble. It may also affect pension payments, the ways your business can raise money and the way management decisions are made about the business.

The choice you make could also affect your eventual exit from the business. If there is more than one person starting the business then documents such as partnership or shareholder agreements will need to address what would happen if one partner wanted to exit the business due to ill health or for other reasons.

There are several structures to choose from and an accountant or solicitor will be able to advise on the best option for your individual circumstances because deciding on your business structure is an important step - it could affect the degree of financial risk you take on, the control you retain over the business and the level of day-to-day administration involved.

Setting up as a sole trader is probably the simplest option. Here accounts are straightforward and profits belong to you, however you are also personally liable for any debt.

If you decide to set up a limited liability company, including private limited companies, you must comply with strict regulations, but you can raise money through shareholders. In this situation the company’s finances are separate from the personal finances of the owners.

A partnership may be another option to consider. Here two or more people share the responsibilities of running the business, and take equal share of both profits and debts. A limited liability partnership is similar to a partnership but liability is limited to what each partner has invested and the personal guarantees that have been given.

Other legal structures to consider include franchises, social enterprises and co-operatives. You should research each option carefully, and consider taking legal advice, before deciding upon the legal status of your business.

Business Link has a helpful online guide available at www.businesslink.gov.uk/northeast where businesses can go to find out more legal structures and choosing the best one for you and your business.

Business Link also has a team of expert advisers who offer advice, help and information to individuals and companies across the region, giving them access to the ‘business brains’ who will help to grow their company and enhance their skills. For further information about Business Link visit www.businesslink.gov.uk/northeast or call 0845 600 9 006.

This was posted in Bdaily's Members' News section by BENE .