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Date of publication: September 2012
The principal choices of business vehicle are:
- Limited Company
- Limited Liability Partnership
- Sole Trader/Partnership
A Limited Company is the best known corporate vehicle. A common mistake is to immediately set one up without exploring whether this is the best option for your new business or to best expand your existing business.
You should consider carefully which vehicle best suits your needs, and whether you actually need an entity at all, either now or in the future. This is a complex decision and you will need to seek professional advice, however, the summary below gives some of the available options.
Separate legal entity owned by Shareholders and managed by Directors. Its profits are liable to Corporation Tax, distinct from any tax on the income of the persons who own or run the company.
- Well recognised and respected structure.
- Efficient for tax, given low UK tax rates and ability to declare dividends which do not receive national insurance tax.
- Quick (can be done in 24 hours) and inexpensive to set up.
- Provides legal protection for the Directors and Shareholders. You can only lose what you put in.
- Management and ownership can be kept separate.
- The only residency requirement is an office in the UK - Oury Clark can provide this.
- There are no residency requirements for Directors or Shareholders. They may all be based abroad.
- You must file accounts which are made publicly available.
- There are statutory requirements for the content and presentation of the accounts. You will probably need the assistance of an accountant to prepare these, thus increasing costs.
- Depending on size (and that of the Group) an audit may be required, further increasing costs.
- Details of directors will be a matter of public record (although personal addresses can now be withheld).
- Names of shareholders will be publicly available.
- Benefit in kind legislations and dividend declaration can be cumbersome.
Limited Liability Partnership (LLP)
A partnership, with the distinction, that the liability of the members is limited.
- Transparent for tax, which means the money flows through it and profits are charged as income tax on the individual.
- Limited liability defined by the capital and net assets of the business.
- Separate legal entity for the holding of title to assets.
- Flexible structure, giving you the ability to adjust the profit share from year to year as you see fit.
- Can have individuals and corporate companies as members (partners).
- Requirement to file information publicly.
- Not as well recognised or understood as a Limited Company.
- You need at least 2 people to set one up.
- Members all have to file UK tax returns and pay UK tax on profits received.
A sole trader is the simplest vehicle for a person trading alone. Where more than one person trades it is a partnership. If you are planning to operate in this way then you merely need to apply to the Tax authorities (HMRC) to be recognised as a ‘Sole Trader’ or ‘Partnership’. You may give your business a trading name.
- Flexible and efficient for tax - potential to claim a variety of expenses without some of the complex reporting that exists for a company.
- Very easy to set up - simply inform HMRC that you are commencing trade within three months of so doing.
- No requirement to file information publicly, but there is an obligation to provide information to HMRC.
- Low administration cost – the sole trader and individual partners incorporate the business information into their personal tax returns.
- Unlimited personal liability for the debts and actions of the business. Partners are jointly and severally liable (unlimited) for the actions of the other partners.
- Misunderstood and does not carry the credibility of a Limited Company.