Management and organisation

• sole trader
• partnership
• limited company

Sole trader

This is the simplest way of setting up and is the term used for a one person business with or without employees.

By being a sole trader you have complete control of decisions and you put in or take out as much of the business’s money as you like. You also decide how much time and money you put in.

The main advantages are that it is inexpensive to set up, no need for registration, no need for accounts to audited

The main disadvantages are that you are personally liable for all business debts, the image is not as “professional” in some peoples eyes.

Partnership

This is very similar legally to sole traders except the business is financed and/or run by two or more people. Any profits or losses made are then shared in a manner previously agreed by the partners.

Partners are jointly and severally liable for all debts. This means that if a debt arises from actions taken by your partner without your knowledge, you are still jointly responsible.

You need to remember that although a partnership has the advantage of being quite unrestricted, you will not be in sole control. This can be an issue for certain individuals and again can be dependant on your personality.

It is important to set up a deed of partnership which should be prepared by a solicitor and cover points such as:

• profit sharing arrangements
• division of roles and responsibilities
• policy for admission of a new partner
• accounting arrangements
• arrangement for dissolving the partnership

Advantages of being in a partnership are they are inexpensive, no need for registration, no need for audited accounts, risks can be spread, potentially more finance available, shared responsibility.

Disadvantages are personally liable for business debts, may not sound as professional, some national insurance benefits are not available, could all be responsible for debts of partners, need to draw up a partnership agreement, could fall out with partners.

Limited company

The main alternative to a sole trader and partnership is the registration of your business as a private limited company. The procedure is a little more complicated but there can be real advantages. The main one is that in law the company has a legal identity separate from your own. This means your personal liability is limited to the nominal value of your shareholding whilst other personal assets are not liable.

There must be at least one shareholder, at least one director plus a company secretary. Your company must draw up its own rules, known as memorandum and articles of association. These will define, for example voting rights, powers of directors and share equity. You must also register with the registrar of companies. Your accountant or solicitor will be able to advise you.

Forming a company can take time, with the process taking at least 6 weeks. Extra costs may be incurred when you are trading as a private limited company, these being paying corporate tax on profits made.