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Business Status

Q: I want to go into business but need advice on what business to form and what would be most suitable for my situation.

There are three main types of business as follows.

• Sole Trader
  This is the simplest form of trading. One person is the owner-manager but the business can employ more staff. Many formalities associated with starting up in business are removed if you are a sole trader and TEDCO's Business Advisers can provide further information about this. The liability of businesses that are run under the Sole Trader status remains with the proprietor, which means if the business fails personal assets and savings could be at risk. On the other hand, the trader has the rights to all profits made after tax.
• Partnership
  Where two or more people are in business together. This type of business arrangement is generally neither incorporated nor registered so it has no separate legal identity. By law, therefore, it is only members of the partnership who can employ people, enter into contracts etc. It is advisable that a 'Deed of Partnership' is drawn up by a solicitor. This legally outlines various issues, for example areas of responsibility and how assets will be split between the partners in the event of ill-health or retirement and ensures both partners are jointly liable. It is possible to trade without a Deed of Partnership but each partner is vulnerable without it. A limited liability partnership is a new form of business entity which does offer limited liability. The main difference between this and a limited company is that it has the organisational flexibility of a partnership and is taxed as a partnership. In other respects it is very similar to a company.
• Limited Company
  This is a legal body in its own right which usually has a private status. Trading under this status requires certain documents to be submitted by law to the Registrar of Companies Companies House.
  Tax and National Insurance are payable under the Pay As You Earn (PAYE) scheme by employers and employees (including directors). Corporation tax is also payable by the company on any profits made. You are only risking the amount you have invested in your company, rather than risking you personal wealth; hence the term 'limited liability'. If you become insolvent the maximum creditors receive is the shareholder's original investment.