Introduction


So you have decided to start your own business, you have this great idea, you have started your business plan and now you need to know what to legally define your company as, well here is a simple guide which will tell you about the possibilities and some of the pros and cons of each.

Choosing the right one is an important step so take your time over this and access your goals and ambitions and chose the one which will best suit your business.

Sole Trader


This is by far the easiest way to set up a business and it is the most popular for those starting out, below are some of the key features:

1. only one person runs and is legally responsible for the business
2. All you need to do is register with HMRC as self employed other than that no other registration is required
3. you trade in your own name for example, Sarah James or with a trading name such as Sarah James trading as My Business
4. you are taxed via the Self Assessment and you normally pay tax twice per annum.

Pros

1. You are only need to maintain a Profit and Loss and Balance Sheet so accounts are kept to the minimum and so are fairly straight forward.
2. very easy and quick to get up and running
3. All profit after tax is yours to keep.

Cons

1. you are personally liable for all the debts incurred
2. your personal assets are at risk, if your business fails your creditors can seize your property in settlement.

Partnership


This is the second most popular way of running a small business.

Features

• a minimum of 2 and a maximum of 20 partners
• Can operate under partnerships name or the partners name followed by trading as. But all correspondences must use name of all partners.
• Each partner must register with HMRC as self employed.Partnership agreement should be signed, to minimise problems in the future.

Pros

1. Very easy and quick to start.
2. Accounts can be simple if you maintain organised books.
3. responsibility for business debts is shared amongst partners.

Cons

1. you are personally liable for up to 100% of the partnership debts and creditors can chase you for this
2. your personal assets are at risk and can be seized by creditors to settle debts
3. When you sign a partnership or verbally agree a partnership, you must split the profits in the agreed proportions

Limited Company


This is one of the less popular methods for start up companies, mainly because the costs to set them up are much higher, however recent legislative changes mean that ltd companies with profits less that £10k have tax breaks mean that they are rising in popularity. They are usually done by established businesses and start-ups with high start up capital.

Features

• a separate legal entity in its own right and can sue and be sued
• owned by the shareholders
• set up via registration at Companies House - see link
• annual accounts have to be submitted without fail

Pros

1. Liability is limited by shareholders stake in the business
2. The company is an entity in itself and hence will not dissolve when the directors or shareholders die or leave.
3. Ltd companies are viewed in a more trustworthy light that sole traders and partnerships.

Cons

1. Large amount of paper to register company.
2. It has much higher costs associated with set up.
3. you can be fined for missing the annual returns

Starting a business - The Business Plan

Over the coming months, I'm going to be writing about the importance of business plans, how to go about creating business plans and finally how to take that step from business plan to running the business.

General overview

A Business plan is arguably the most important part of any new start up business, or for that matter any business at all. Why? I hear you ask! It gives your ideas substance and a logical framework with which to build your dream into a reality. Not only this but anyone wanting to invest will want to see it. It is the guide to your business.

There is a very famous saying:

Failing to Plan, is planning to Fail

This was said by Ben Franklin, Churchill and many others in some form or another. It really does apply to business plans. Did you know that 95% of businesses without a business plan fail... yes I know 87.567% of statistics are made up but feel free to go and verify this one. Without direction a new venture is likely to not succeed. Why start if you don't plan to succeed so get planning.

 Now you know why you need one, what exactly is it? A business plan is a working document (by that I mean you don't just write it once put it in that file and dust it off once every three years to show the bank when you want an overdraft or loan) It should be flexible, it should grow and change with the ever changing face of your business, it should reflect your business goals and finally but most importantly it should be current and up to date.

I won't go into detail over how to write one here as that is for future posts. I'll just leave you with this If you want your business to succeed you have to plan for success, you need targets and plans these can't be in your head they need to be recorded, so please start by just jotting down your business ideas, what is the general concept, who are your potential customers, what are your short, medium and long term goals.

I want to start a touring theatre company, which will supply theatre workshops to support the national curriculum. I want to deal with schools, local councils and government and social groups. I want to start in my local area probably with one troupe and once this is financially successful I'd like to branch out to other areas in the UK and eventually be the leading provider of TIE (Theatre in Education) for the UK. 

This is all your start needs to be it states what you want to be, it's main market and niche and some short and longer term goals. It is very basic and a top level overview of what you want to achieve, but it is a great starting point.

In the next blog we will build on the above and start talking about how we turn our vision into a business plan with substance.

Please feel free to ask me any questions you like by leaving a comment.

and check out businesslink.gov.uk which is a very useful site with lot's of information about starting a business including writing your business plans.