Choosing the right business structure is important from both an everyday point of view but also due to tax.
There are three main types of business; Sole Trades, Partnerships and Limited Companies.
This is the most basic type of business.
Basically, a person trades as their own entity.
All profit is treated as their personal income and no business tax is payable.
The main advantage of a sole trade is the simplicity and the lack of corporation tax.
There are, however, distinct disadvantages.
As a sole trader, you are linked to the business, that means that if the business owes money YOU owe money.
Probably the most flexible business type available. This is perfect for when two people want to start a business but retain a sense of individuality.
The set up can be with individuals as partners or limited companies, provided certain criteria are met, and each partner is entitled to a pre-determined split of all profits. Again, there is no business tax payable which means a partnership can be a cheaper form of business between parties.
There is, as with a sole trade, no barrier between the partners and the business so any legal action or money owing is accountable directly to the partners.
Limited companies are perfect for growing and larger business but also for any business that requires a defined split between the business itself and the owner.
The main advantage to a limited company is the separate legal entity that creates a wall shielding the shareholder’s from any company liabilities. To give an example, if a limited company owes money and does not have sufficient cash to pay then, provided no guarantees have been given by the directors or shareholders, the owners will never have to personally suffer the shortfall.
Limited companies do have to pay corporation tax on all profits, however, distributions to shareholders can be made via dividend which attracts a smaller rate of tax than income.
How to Choose?
Our team of business experts will examine your business in detail identifying profits, tax payable and business sector in order to help you arrive at a business model that is tax efficient but also fits your personal needs.