Business structureKMA Goldmine TV – Episode 22 – Business Structure- Sole Trader/Partnership/Limited Company/Limited Liability Partnership

“KMA GOLDMINE TV EPISODE 22 – Business Structure- Sole Trader/Partnership/Limited Company/Limited Liability Partnership “



Here, Kim Marlor talks about the different business structures and some of the pro’s and con’s of each

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Hi, Welcome to this week’s edition of KMA Goldmine TV aimed at helping you to take your business from where it is now to where you want it to be.

I often get asked by prospects, new businesses, existing business owners about how their business should be structured. What’s the best way? Should it be a sole trader business? Should it be a partnership? Should it be a limited company or a limited liability partnership?

So, I thought it might be useful to devote this episode of KMA Goldmine TV. Just to contrast those and talk to you about the pros and cons of each one.

Sole trader businesses

The sole trader is an extension of you as an individual and it’s usually operated by people trading on their own. So we talk typically businesses like for example, hairdressers, therapists, tradespeople, etc. Tend to operate as a sole trader. Now the benefits clearly are the flexibility that you can decide to trade and then start trading. You can be flexible about when you declare as your start date, but there are some negatives.

The biggest negative is that that is no protection for you as the business owner. So if anything goes wrong, there is no separation. So assets that you own individually could be at risk. If anything happens to the business, and this is called unlimited personal liability.  From HMRC is perspective, they don’t see any separation effectively between you as an individual and you as your trade. A piece of advice would be to have a separate bank account and keep things separate as much as possible. Also, if you receive any money, for example, an inheritance, then make sure you’ve got documented documentary evidence about where that money’s come from so that if there was an investigation and questions asked from HMRC, you could tell them how it came about. Clearly the positive side of that is it’s so much easier for you to keep your records. There is less cost because less has to be declared in terms of how the accounts are put together.

it’s one of those, where as the business evolves, you may want to look at it a little bit more protection and so you may not want to continue as a sole trader. So that’s the benefits and negatives of sole trader business.

The second structure is a partnership

Now, as the name suggest, a partnership is at least two people. It’s very much like a sole trader business, so everything that we’ve talked about already applies with a partnership business though you do need to make sure that you are protected because clearly if one partner did something that brought the business down, then you would also be liable for those business debts. So I would recommend that you have a partnership agreement drawn up. I’d recommend clearly that you get legal advice on that and do it properly because you need to be protected should anything happen.

Other than that, that’s the main difference to a sole trader business. You need to kind of protect yourself. Clearly there is less legislation that has to be complied with than in a limited company, but as a partnership you do have to not only submit accounts and personal tax returns, you also have to do an additional partnership tax return that you wouldn’t do as a sole trader.

The next business type is a limited company. This is a little bit more formal and is a separate legal entity. As a result of that, you ought to have a shareholder’s agreement in place and I’d recommend getting a solicitor to draw that up. The reason for that is in the event of the death of a director, the company’s still continues so you need to know what is going to happen. Equally, you need to know how you want the shares of the company to be distributed.

You know the worst thing in the world would be to have the spouse of an ex director who’s sadly no longer with you trying to tell you how to run your company. They may have the majority shareholding for example, but may have no experience of the company, may not have the same vision and goals as you have and that could be a recipe for disaster. So I definitely recommend getting a shareholder agreement. Equally with a limited company whilst there is more protection for you as directors and shareholders and limited liability, you do need to do more to keep the tax authorities happy in the UK. For example, there are accounts that need to be submitted to Companies House and there will be a Corporation Tax Return that needs to be submitted to HMRC and then the directors will also need to submit Self-Assessment Tax Returns for that earnings and dividends if there are any from the business.

Equally you have to submit a Confirmation Statement which talks about the shareholding in the company. Now it is perceived to be more established and therefore potentially more credible than being a sole trader business. But of course because you have got more legislation that you need to comply with the will be additional costs. Obviously there’s costs of the shareholder agreement. There is costs of operating the payroll because you will need to have a payroll for a limited company. That will be consideration in terms of tax because of directors and dividends and you will also need to take account of any additional Shareholders and their needs and requirements, but generally a lot of consultants prefer to have the Limited Company vehicle around them to protect them a little bit from any issues that were to arise as a result of their work. So that gives you a bit of a feel for limited companies.

The final business structure is a Limited Liability Partnership or LLP for short. It’s very, very similar to a limited company. The main difference is that instead of directors, you have partners, hence the name partnership and so what happens is the profits of the company are distributed based on the partners. On a pre agreed percentage you will find a lot of the big accountancy practices like PWC for example, and solicitors companies use LLPs rather than a limited company structure, but you still have to report a lot of information to Companies House as you do with the limited company, which again is very different to a sole trader business because there’s very little information in the public domain. If any for a sole trader, whereas limited companies, because they have to submit to companies house. There is more information out there on the directors and the registered office that could be at home.

So you might have your home address in the public domain, not so much these days, dates of birth, but some information about your, when you were born, the year of birth, they’ve taken the actual dates out of the documentation that’s held at companies house these days because I guess because of identity fraud, so there is more information that’s out there than a sole trader or a partnership. But clearly there is that limited liability that you can weigh up and decide on which way you want to go. So my final message to you for sign off is whatever structure you want to and take account of when you’re setting up or changing, make sure you get some professional advice. So that’s it from Kim KMA Goldmine TV bit size, bits to help your business grow. Until next time, bye for now.

If we can help with anything included in this edition or if you’d like to talk to us about anything Accountancy or Business development, then call us now on 0161 410 0016. 


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