There are many questions to ask yourself when you decide to set up a business. These will range from ‘Why am I going into business and what do I want to achieve from it?’ to ‘How will my business operate?’The answers to the first question may be very complex and personal to you but the secondquestion is answered in this chapter:
The legal classifications of a business
Sole trader
You are on your own, no one to answer to, no one to tell you what to do – you are your own boss.You will, however, be responsible for purchases, sales, advertising and marketing, accounting, shopfitting, cleaning...
It is good to have someone to share the burden of work and to throw ideas around with. This helps to keep you focused and stops you taking the business off at a tangent. Beware, however: you need to be sure that your objectives and those of your partner(s) are the same. Be quite clear about the allocation of work, how much each has invested financially and how the profits will be split. Unless these matters are clear from the start, there will be arguments about who is pulling their weight and who is not, who has put the most into the business in terms of time, effort and money.
The other problem with a partnership is ending it. If you are undertaking a specific venture for a set length of time, that should be fine. If it is to be an ongoing venture, then when and how will you arrange to go your separate ways? Anyone who has ever been divorced will tell you that when a marital partnership breaks up the main asset usually has to be sold to give each party their share. In a divorce this will be the family home, but for a business … the business will be the main asset.
A limited company
This is a legal and regulated entity, which must be registered with Companies House.The advantages of being a limited company include:
◆ the potential to reduce your tax and national insurance liabilities
◆ greater personal protection financially should the business fail
◆ protection of your business name to prevent other people trading with it
◆ potentially a perceived higher status of your business.
The downsides include:
◆ extra administration and costs, both in setting up and ongoing
◆ the inconvenience of closer scrutiny of your financial affairs.
