How to Start a Business
posted by: Ciprian Hirlea
Starting-up your own business need not be as difficult as you might imagine. However, it is important to know what kind of businesses there are before you jump into making plans for your first company. Furthermore, it can make all the difference knowing which kind of business arrangements are available to be utilised as well as the merits of each. Moreover, before thinking about potential funding you may require such as unsecured business loans or otherwise, you should be mindful of the tax implications and conditions of each type of business.
Types of Businesses
Sole Traders – If you are a Sole Trader, or sole proprietor, you are the one and only owner of the business. This means that all of the company’s assets and profits are owned by you (after tax). To set up as a Sole Trader, you must register as self-employed with HM Revenue & Customs. Being a Sole Trader is, then, appropriate for people who are building a small business, who can control and be responsible for any profits and debts personally.
Advantages of a Sole Trader
• Ownership – You are the sole owner of your company, its profits, and its assets.
• Privacy – Information about your company need not be made public, as it is privately owned.
• Control – As owner, a sole trader has the uttermost control of the company and how it operates.
Disadvantages of a Sole Trader
Risk and liability – In the same way that a Sole Trader has total ownership of their profits, they are also responsible for any debts or legal issues the business may accrue. Sole Traders are not legally separate entities from their owner, therefore the Sole Trader’s personal assets may be at risk should the business fail or blunder.
Potentially less scope for growth – Although they can still acquire business loans and sources of funding for their business Sole Traders cannot benefit from the savings that large corporations gain in the form of tax breaks and bulk-buy savings, therefore it can be harder to grow financially.
Unlike a Sole Trader, a limited company is its own entity by law. This means that it gains and loses money itself, under its own name, like a person does. A limited company must also have its own bank account, and must have at least one appointed director to manage the company.
Advantages of a Limited Company
Risk and liability – If you run a limited company, the company is a separate legal entity to you as a person, such that you are not personally liable for any of the losses (or gains) that your company may make.
Tax benefits – You may receive your income in dividends if you are the director or shareholder of a limited company, which optimises your tax efficiency.
Legal protection – After registration, the name of your limited company is protected by the law.
Disadvantages of a Limited Company
• Corporation Tax – All limited companies must pay Corporation Tax on their profits. You must register your company to pay Corporation Tax, VAT, and National Insurance Contributions. Your company becomes legally liable if these registrations are not made.
• Responsibility – If you are the director, sole shareholder or founder of a Limited Company, the responsibilities of running the company fall on you. If your company fails to comply with any of the laws and regulations involved with running a Limited Company, you are the one that will suffer prosecution.
General Partnership Businesses
General Partnerships are when two or more people share equal responsibility for their business. Your business-partner does not have to be an actual human being, as long as it is a legal entity. Limited Companies are themselves legal entities, therefore a business partnership many be comprised of two Limited Companies, or by a Sole Trader and a Limited Company, or two Sole Traders. It is possible to form a Limited Partnership in any of these ways.
Like a Sole Trader, a Partnership is not a separate legal entity to its owners. The difference is however, that all profits or debts are divided between the partners, rather than the responsibility of a single individual as in the case of a Sole Trader.
Advantages of a Partnership Business
Ownership – You are the owner of your company, its profits, and its assets, in tandem with your partner(s).
Privacy – Information about your company need not be made public, as it is privately owned.
Control – As owners, the Partners have the uttermost control of the company and how it operates. The partners share liability and responsibility with one another.
Disadvantages of a Partnership
Risk and liability –The partners are not legally separate entities from their owner, therefore all partners’ personal assets may be at risk should the business fail or blunder.
Joint-ownership – All profits gained and control of the company are shared between partners; the functionality of the company thus requires good working relations between owners.
What You Need to Start a Business
In order to start-up your own business, you are likely to need the following:
• A great business idea
• A company name and identity
• To choose a company address
• To decide on the type of business you are starting
• To appoint one or more Directors and/or shareholders
• To create company rules
• To start branding your business
You may need specific start up loans and may need to enlist some professional help and you may need an expert to help with the branding and company identity, but many of the steps required to set up a business from the outset are entirely do-able oneself. The most important aspect of starting your own business is that you make sure to follow legal procedure whilst doing so. Anyone can have a thriving company with a good business plan, and equally, any good business is doomed to failure if it does not comply with governmental regulations.