Business Start-ups

Having had significant experience in the cut and thrust of fast moving businesses, we believe we understand the challenges that face start-ups — their anxieties, risks and rewards — and are well placed to advise about starting a business. We can assist you with all legal aspects of your business including functions and duties of directors, employment law, and business contracts as well as the formation and dissolution of partnerships.

Choosing the right structure for your business

When embarking on a new commercial venture it is important to decide how your business will be structured. The type of structure you choose will determine the legal and tax responsibilities of the business and those behind it. Merchiston Solicitors offer bespoke advice so that your business gets off to the best start, running under one of the following structures fit for purpose.

Sole Trader

A sole trader is someone who operates a business, with or without employees, in their own name. They are personally responsible for all the legal and tax consequences flowing from the business. Read more…

Partnership

Like the sole trader model, partnerships offer flexibility and simplicity but with the added benefit that all partners, whether they are individuals or companies, are jointly liable for the business. Read more…

Limited Liability Partnership (LLP)

Limiting liability for a business’s debts is a major consideration when choosing a company structure. It allows individuals to take part in commercial transactions without risking their personal finances. Read more…

Private Limited Company (Ltd)

Private limited company (Ltd) status also indicates that a business has separate legal personality with its own rights and responsibilities allowing it to enter into commercial relationships. Read more…

Sole Traders

A sole trader is someone who operates a business, with or without employees, in their own name. They are personally responsible for all the legal and tax consequences flowing from the business.

The sole trader model most commonly suits start-ups or small businesses where commercial transactions and responsibilities are easily manageable. This is because sole traders are personally responsible for the profits and losses of the business, keeping records and the tax payable, such as income tax, national insurance and VAT (where takings exceed a certain limit).

The key benefits of operating as a sole trader are flexibility and simplicity. There is no need to register as a sole trader other than for tax purposes and there are none of the filing requirements that can burden companies. However, with this flexibility comes risk. A sole trader is wholly liable for the business, including all business debt, which can have a dramatic impact on personal finances. (Click here to return to structure table).

Partnership

Like the sole trader model, partnerships offer flexibility and simplicity but with the added benefit that all partners, whether they are individuals or companies, are jointly liable for the business.

Any commercial activity can have a partnership structure, provided there are two or more people carrying on the business, and setting one up has few formal requirements. For instance, there are no statutory accounting obligations other than those generally required for tax purposes and no need for a written agreement confirming that a partnership exists.

The absence of any formal requirements for setting up and running a partnership means default rules will apply unless a partnership agreement is drafted. These default rules provide for a number of situations, such as the equal sharing of profits and participation in the running of the business. Drafting a partnership agreement means these default rules can be altered to fit the needs of the business.

However, as with a sole trader, partners are personally responsible for debts as well as profits. Because they are jointly and severally liable for the partnership, any debt owed by the business isn’t shared but enforceable against any one of them, which means personal finances are at risk should the business fail. (Click here to return to structure table).

Limited Liability Partnership (LLP)

Limiting liability for a business’s debts is a major consideration when choosing a company structure. It allows individuals to take part in commercial transactions without risking their personal finances.

This is because the business is given separate legal personality that allows it to enter into legal relationships and have separate rights and responsibilities to that of its members. With this added benefit come obligations, such as registering a limited company with Companies House and disclosing information about it to the public.

Limited Liability Partnerships (LLPs) are a very common form of business structure because they retain the flexibility afforded to a partnership while also limiting liability. Although a LLP needs to be registered, there is no requirement to have a written LLP agreement and the tax consequences are similar to those for partnerships.

However, a default system of rules for running a LLP, distinct from the partnership regime, applies. It is therefore wise to draft a members’ agreement when forming a LLP, so that the default terms can be varied to account for the particular circumstances of the business and its members. (Click here to return to structure table).

Private Limited Company (Ltd)

Private limited company (Ltd) status also indicates that a business has separate legal personality with its own rights and responsibilities allowing it to enter into commercial relationships.

The risk to the personal finances of those who own the company only amounts to what they have invested in it. However, unlike an LLP, a private limited company's separate personality means it owns the profits it has made. The profits are then shared with its members (the shareholders) according to the rules agreed by them. These rules are known as articles of association and determine how the company is run.

Limited companies are subject to much more stringent legal responsibilities and tax liabilities, such as corporation tax. The business must be registered with Companies House and HMRC. These organisations must be sent statutory accounts every year that comply with accounting principles, based on business records that must be kept for six years. Directors must be appointed to run the company and comply with specific legal duties.

The administrative burdens on a limited company can be restrictive for small and medium-size enterprises, which tend to benefit from more flexible business structures. However, larger commercial ventures may find the financial security offered by a limited company desirable. (Click here to return to structure table).

Contact Merchiston Solicitors

Our specialist commercial lawyers have vast experience advising businesses on which structure best suits their needs. Contact us today to see how we can help you. Call 0203 540 6340 to speak to one of our expert solicitors. Alternatively, please email us on contactus@merchistonsolicitors.co.uk or complete our online enquiry form.

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