The Business Legal Services Blog

On the second day of Christmas, my corporate solicitor advised me…

… to structure for success.

day-2-strucutre-for-successHopefully today’s advice will be more useful than two turtle doves!

There are several ways in which you can structure your business and the one that’s best for you will depend upon the factors you deem important. These can range from flexibility to tax issues, ongoing administration, risk and liability or raising finance.

Probably the easiest way to satisfy your entrepreneurial ambitions is as a sole trader. Once you’ve registered as self-employed, you can start working and other than tax returns and National Insurance payments, there are very few ongoing regulations or formalities with which you have to comply.

The downside of being a sole trader is that in terms of liability, you have no protection if anything goes wrong. You will be personally responsible for any debts the business incurs, so if you operate in a high-risk industry, it may be worth considering a structure that offers more protection.

This leads us onto partnerships. You are not required to have formal arrangements in place, but if you and at least one other person is “carrying on a business together with a common view to making a profit,” then you are already in a partnership.

If you do not have an official agreement drawn up, you should be aware that you will be governed solely by the Partnership Act 1890 and this may not suit how you wish to run your company.

Like sole traders, you will be personally accountable for any debts incurred and each partner is jointly and severally liable. This means that if a three-way partnership owed £1 million, one person could be sued for the entire amount. He would, however, have the right to be indemnified in respect of a third of that debt from each of his associates.

The next structure to consider is a limited liability partnership (LLP), which is similar to a normal partnership, but your personal liability is restricted to the capital you invest. It must be registered at Companies House and will have “members” rather than partners. Even though your responsibility is capped, third parties such as lenders or landlords, may still require a guarantee from you to back up the obligations of the LLP.

Our final and probably most common business structure is the limited company. It is owned by shareholders and managed by directors, who in reality, tend to be the same people in small organisations.

A limited company is governed by the Companies Act 2006 and by Articles of Association that dictate the way it is run. Opting for this structure means a shareholder will only ever be liable to creditors for the nominal value of his or her stake. For example, a person with 100 shares worth £1 will need to pay the company at least £100 for them, but provided that amount is accounted for, no one can ask the shareholder for further sums.

If you are setting up a new enterprise or would like to discuss the existing structure of your business, speak to Rob Moore in our expert corporate team on (0114) 218 4000 or follow Taylor&Emmet on Twitter, @tayloremmet.

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