Before setting up a business it is important to research your area of interest, understand current market trends, products and your client group and its needs.
When setting up a company you need to choose and understand which structure is right for you:
The following structures are the most commonly used ones:
1. Sole Trader - as a sole trader you work for yourself and own the business, however, you may employ other people to work for you. A sole trader is classed as self employed and will need an Insurance Number and need to register with HM Revenues and Customs for self assessment, all income and expenditure needs to be recorded and Tax and National Insurance will be calculated and due on any profit made. The risks associated with being a sole trader are that outstanding debt from your business can be met from your personal assets. It is suitable for small businesses with very low or no financial risk. To register with HMRC you need to fill out and complete Form CWF1.
2. Limited Company - There are two types of limited companies:
i. private limited company - LTD, privately owned company with limited liability. The company can buy things, incur debts, sue and be sued but any action would only affect the company's investments and assets not anybody's personal assets. By forming a Ltd company you are separating and protecting your personal assets from that of your business. Your company must have the following:
a. A company name
b. A registered UK address where official documents can be sent to
c. Payment to Companies House
d. At least 1 director and 1 share holder
e. Articles of Association - rules about running the company
f. Set up the company for corporation tax within 3 months with HMRC providing a start date, company name and number, address and business type in order to receive a UTR (Unique Tax Reference) number.
examples of private limited company's: Warburton's, New Look Retailers Ltd
or
ii. public limited company - PLC, which are normally large companies with limited liability but have the power to sell shares to the public and have the possibility to enter the stock market, raising the profile of the company. A PLC must have the following:
a. A company name and address
b. A minimum of 2 directors
c. A minimum of 1 shareholder
d. A qualified company secretary
Initially at least 2 shares need to be issued in the statement of capital section and then an SHO1 form needs to be filed to be able to issue up to 12,500 shares. There is generally more administrative work associated with a PLC.
examples of PLC's: Microsoft, Mc Donald's and Starbucks
3. Business Partnerships or LLP (Limited Liability Partnership) - Business partnership is 2 or more partners are running a business and share all responsibility for it. This type of approach is more suited to professionals such as solicitors, accountants or architects that are prevented from forming limited companies due to restrictions from their professional bodies but whom require the benefits of limited liability. There is no need for governing documents, however, partnership deeds are highly recommended. LLP's are taxed differently as profits are treated as personal income.
examples of business partnership: Pricewaterhouse Coopers, Wakeel Partnership, Ernst & Young
Director
In order to be a Director of a company you must be aged over 16 and not be declared bankrupt or disqualified by a court from holding a directorship.
A director's responsibility is to ensure that the following paperwork reaches companies house registrar:
Annual accounts, annual returns, notification of any change of directors' secretary and any notification of the change of the registered office.
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