In a previous post, where we shared four steps to success and profit, we said we’d explore the differences and the pros and cons of setting up your business as a Partnership, Sole Trader, or Limited Company.
When you’ve decided to take the leap of working for yourself, it can be difficult to know what to set yourself up as. We’ll outline the key aspects of each to help you make the choice.
This is you and your business, as one, without distinction. You’re responsible for the business and therefore any debts or losses it might incur. On the flip side, it means the profits are yours too.
You don’t have to work alone either, despite the suggestion of the name; you can employ staff. You still need to tell HMRC you’re trading and make sure you do a tax return every year, but you don’t have to register with Companies House or pay corporation tax.
Much like a sole trader but you have a partner who shares responsibility for the business. The profits and taxes owed are based on the percentage of the business you own. So if you’re a partner then you’re responsible for the costs of that business and you’ll receive the share of the profits as dictated by the partnership split. You can still be liable for a business’ entire debt, if for example, your partner walks out.
You can also set up a limited partnership or limited liability partnership which shares some of the traits of a limited company, such as registering your business with Companies House.
Here, your business is a separate entity. It needs to be registered with Companies House and runs in a different way to a sole trader or partnership. The company will have members who own shares, and directors (who usually own shares but don’t have to) who actually run the company.
The company’s finances are separate to your personal ones and any profit the business makes is owned by the company, who then, after corporation tax has been paid, can share the profits.
Making the decision of what to trade as can seem daunting, but once you have all the facts you need, the choice will seem much easier. We’re here to help guide you through which option is best suited to you and give you any information you need to make your exciting next step.