Before we take a look at how you know what the right structure is for your business first we should take a look at what we mean by structure. As the name suggests choosing a structure for your business essentially determines how it’s going to run, who it’s going to be run by and each structure has its own positives and negatives. Here are the most common structures in business:-
- Sole trader – this, as the name suggests is when you’re in business solely by yourself and you are the only proprietor of the business. The tax aspect of being a sole trader is attractive to many as you get to keep all of the profits but each year you’ll have to fill out a self-assessment declaring all of the profits and pay tax accordingly.
- Partnership – this is where you join up with another person or person(s) and between yourselves make an agreement to both be responsible for either the losses or profits within the business. As well as you both being liable for risks taken by the business you may also find yourself liable for any mistakes made by the other partner.
- Limited company – if you set your business up to be a limited company rather than you or a partner being liable for losses incurred by the company then the company in itself is liable. On the other hand, any profits made by the company are retained by the company itself only after corporation tax is paid which currently sits at 20%. If your company is turning over £75,000 and you no longer want to be liable for the business this might be the right structure for your business.
- Limited Liablity Partnership (LLP) – similar to being a limited company your business as an LLP becomes a separate entity from yourself and any other directors. The limited liability comes into play by restricting your liability for any losses or failings in the business by the amount of money that you have personally invested into the company.
Choosing the right structure for your business from the above options all comes down to your own personal and business situation. It all depends where your business is at that moment in time, where you’re aiming for your business to be and how liable you want to be for the business. There are also financial implications depending upon what decision you make. If you want to know more about what these implications could be on your business and which structure is best for your business why not have a chat with a member of the team here at D&K accounting.