Best Business Structure for You
Sole Trader - Partnership- LTD
Which is the best business structure for you when starting out in business?
Most people including myself struggled with this question, which is why we'll go through some of the most popular choices available.
I hope you’ll leave here with a better understanding of the different types of legal structures available to run your business, and ideally make the best choice for your business needs. It’s also advisable to talk through in more detail with an accountant to get the right information.
The most popular choices are listed below:
- Sole Trader
- Partnership
- Limited Liability Partnership (LLP)
- Limited Company
Sole Trader
Most people who start a mobile food business begin as a sole trader because it’s the easiest option. This means you are self-employed and responsible for everything in your business. Here’s what you need to know:
- You must register with HMRC – It’s free, and you must do it within three months of starting your business, or you could get a £100 fine. You can do this online at gov.uk/register-self-employed.
- You keep all the profits – But you also pay tax on them.
- You need to file a Self Assessment tax return every year – This tells HMRC how much money you made and how much tax you owe.
- You pay National Insurance – Class 2 (a small fixed amount) and Class 4 (based on your profits).
- You are personally responsible for any debts – If your business owes money, you have to pay it, even if that means using your personal savings.
Sole trader status is a good choice if you’re just starting out and want to keep things simple. You can always change to a Limited Company later if your business grows.
Unfortunately as a sole trader you have no personal protection (unlike a LTD company) you are personally liable for any debts that your business may incur whilst you are trading.
Partnerships
Another popular legal structure if you don't want all the responsibilities of being a sole trader is to share the responsibility with a business partner/s in the form of a partnership. This may be a easier way for you to set up your business as you will have other people to share in the decision making process.
Again each partner registers as self employed with HMR & Customs. It is also advisable to have a written agreement between all partners drawn up to keep everything professional and running smoothly. Each partner takes a share of the profits and the partnership must keep records of income and expenditure. They will each have to submit a separate annual self assessment tax return to HMR&C.
Each partner is liable to pay class 2 contributions a flat
rate for self-employed people and also class 4 contributions
depending on how much profit your business has made. Again(unlike a LTD company)
you have no real protection so all partners are equally liable for
debts owed by the partnership, your personal assets and home may be at
risk.
Okay ! so we have covered the first two most popular business
structure on this page.The next page explains the following business
structures.
- Limited Liability Partnerships
- Public Limited Company