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Forefront Accountancy Services Ltd

Business Start Up Advice

Start UpsForefront Accountancy Services Limited can help you to consider all the aspects involved in setting up your own business.  We can advise you on the options available to you to trade under i.e. whether a sole trader, partnership or Limited Company set up is most relevant.  This will depend on the commercial risks, financing, expected turnover and profitability and the individuals involved.

A brief summary on the advantages/disadvantages of each option is:

Sole Trader

A simple and straightforward way to run a business, you have full control of the business and decisions can be made quickly without the need to confer with other parties.  This means you can react quickly to customer needs and have independence in your business dealings. Your business accounts  do not need to be made public meaning greater privacy.

On the down side you are personally responsible for all your business debts which could mean, if the business proves unsuccessful, that your personal assets, e.g. house or car may be lost.  It can also be difficult for sole traders to raise finance as banks are not keen to lend large amounts and as a sole trader again you are personally liable for any business loan outstanding.  It is however, relatively easy to subsequently change from self employed sole trader status to partnership or Limited company at a future date if required.

Business Partnerships

Business Partnerships are also fairly straightforward to establish, sharing control and responsibility between two or more people.  Share of any profits must be pre-arranged on a percentage basis.  With more than a single owner it may be easier to obtain finance for the business and there is the advantage of having more than one person to run the business, taking advantage of the knowledge and experience of each member rather than having to do it all as in the case of a sole trader.

Disadvantages are that business partners are, as for sole traders, liable for any debts arising from the business and are also liable for the actions of those they are in partnership with.  There is no longer autonomy and decisions must be agreed upon which can increase the decision making time.

Limited Liability Partnerships – LLP

Limited Liability Partnerships can only be set up with 2 or more members, there is no share allocation only membership interest.  However one “designated member” is responsible for admin and filing requirements, these requirements are similar to those of a company secretary for a Ltd but with more obligations. The LLP agreement is private and is therefore not registered at Companies House an advantage over a Limited Company. LLP’s tend to be used by professional firms and financial structures. The main difference is with the taxation of the business. Disadvantages are the increased set up costs for LLP’s as the LLP agreement is more bespoke and it will take a solicitor longer to draft. There is a very clear set of duties that directors of Limited Companies owe to the company. The law around duties of LLP members is far less developed. It is also more difficult to 'sell' an LLP. As there are no shares, you are moving membership interests around and is potentially more difficult to market and sell than shares that everyone is used to. They are similarly, more difficult to market to investors.

Limited Companies

Limited Companies are a separate legal entity from the owners and are subject to increased statutory requirements including submission of annual financial accounts to Companies House which are then available for public viewing.

The greatest advantage of the Limited Company set up is the limited liability status, in that the liabilities of the company are the responsibility of the company and not of directors or shareholders.  It is important to note however, that any director of the company who gives a bank or other creditor a personal guarantee against a company debt overrides the limited liability offered by Limited Company status and will be personally liable should the company be unable to settle the debt.

Disadvantages are the increased complexity and cost of setting up a Limited Company, and increased costs for preparing company accounts and tax returns which would normally be higher than for a sole trader due to the added requirements of Companies House.

Choosing the right set up for your business is not always an easy decision and as well as considering the immediate advantages and disadvantages of each trading option you also need to consider the option with most beneficial tax arrangements to enable you to minimise any tax liability.

You will need to formally set out the objectives you have for the business and describe how you believe these objectives can be achieved. 

You will need to know how you are going to finance the business, what the expected capital outlay for necessary assets to run the business will be, what expected sales will be and what ongoing costs the business will need to meet.

Even if you do not require investment in the business from an outside source eg. bank loan or other finance then it may be useful to produce a formal business plan to enable you to understand the requirements of the business and indicate if the figures you estimate will give you a profitable outcome.

If you do require investment then it is essential that you are well prepared with a professional presentation of your ideas, plans and estimated income and expenditure.

You also need to consider if it is beneficial for the business to register for VAT from its initial start up date or better to remain unregistered until your gross income exceeds the current compulsory registration threshold amount.  If you do not register for VAT from start up then the VAT element of purchases made prior to trading cannot be reclaimed.  You must decide if it is advantageous to register immediately and reclaim VAT on any outlay made in preparation for trading to commence or to wait until the threshold is reached and avoid sales tax on your first portion of trading income.

Starting up in business can be a huge step and before making this commitment it is most important that you are fully aware of all the legislation and expenditure that is involved not only through trading but also in meeting all regulatory criteria, as well as future tax implications.  Make sure you make your decisions based on the full facts and you don’t overlook a factor which can affect your future profitability.  We have a full range of services available which are designed to help you make the most of your business and provide any accountancy and taxation advice and support needed. 

Forefront - always thinking