When launching your own start-up business, one of the first things you will need to decide is the type of business you want it to be. There are several categories of company or enterprise and each have their own distinct advantages and disadvantages, but working out which is likely to be best for you is one of the very first things that you’ll have to do.
- Sole Trader
The simplest and most straightforward way to operate is as a sole trader. When you are a sole trader you are quite literally, well, just you. Nobody else has any stake in your business and you are solely responsible for all its financial dealings, as well as liable for any losses. Such liability is unlimited, and could therefore involve the loss of your home and/or your personal possessions if things go totally wrong. A sole trader concern cannot technically be described as a company as it is not registered with Companies House. Tax is paid at the same rate as would be the case if you were an employee working for somebody else.
A partnership has the same legal status and the same responsibilities as a sole trader business, but the difference is that more than one person has a share in the operation. The percentage share of the business owned by each partner needs to be determined from the outside and it is always wise to draw up some kind of contract to confirm this to avoid any future confusion or dispute. All partners are responsible for their own tax declarations and, for an unlimited company, any potential debts will themselves be unrestricted. It is possible to enter into a limited liability partnership, which retains the character of a conventional partnership whilst offering some of the protections of a private limited company.
- Private limited company
A limited company becomes a legal entity in its own right, which means its debts are the company’s and not those of the private individuals who run it. It needs to be registered with Companies House and must adhere to certain rules of operation. There is a requirement for limited companies to file annual accounts and a corporation tax return. There are other benefits beyond obtaining limited liability, including tax efficiency and the ability to sell equity in the company to outside parties in order to inject fresh capital into the enterprise. Additional to this of course, a limited company exudes an image of professionalism which does not attach itself to a “one man and his dog” sole trader operation (although technically this would be a partnership!).
- Public limited company
A plc is a less common entity but often one that is considered to be more prestigious. As with a private limited company it offers shares, but these can be sold to the general public on the open market. It is the ability to raise funds from the wider public and for shares to be freely traded which makes the plc option so desirable in many situations.