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What type of business setup should I choose

The type of business setup you choose is an important decision all entrepreneurs have to and need to make. You could change the setup later on, but its best to do this right earlier on to avoid paper work and legal costs.

Sole Trader

If you are the only person in involved in the business then you can trader under any name, such as John Smith Trading As (T/A) Smiths Store.

As a sole trader you are liable for your debts and that of the business. This means that any debts which the business builds up and any debts you have as an individual are treated the same. If by any chance your business gets into financial difficulties then you are responsible for paying the debts. You do not have any protection for the liability of the business. Sole traders do not have to file public accounts, their business accounts are kept a secret, no ever knows how much they earn or how much debts the business has incurred.

Partnership

If you have  two or more people involved in the business, then you could setup as a partnership, which is very similar to a Sole Trader business. Each person involved in the business is liable for the debts of the business. Partnerships do not have to file accounts publicly. Many accountants and Sslicitors often operate as partnership businesses.

Its really important to seek legal advice about operating as a partnership business, as the actions of other members of the business can result in the business failing and you would be liable for the debts of the business

Private Limited Company (Ltd)

A limited company is a separate legal entity and operates on its own. The business owners and managers are not legally part of the company. Shares are normally sold to family, friends and contacts, and purchased from the company, where directors are appointed to manage the business. This type of setup allows the company to have its own bank account and the limited company is liable for the debts. Investors in the company are only liable for the investment they have made into the business. Basically this means if you put £500 into the company then if the business incurs losses or builds up huge debts, you will only loose £500 and are not liable for any of the limited companies debts.

The business pays dividend to its shareholders at the end of the year on profits it makes. Accounts must be filed with companies house and the accounts are accessible by members of the public.

Setting up a limited company requires getting advice from an Account or Solicitor and you must be aware of your legal responsibility as a Company Director or a Company Secretary.

Public Limited Company (PLC)

This type of a company is very much similar to an Ltd company, but has more rules and regulations it needs to adhere to. Its shares can be bought and sold to the members of the public; it can list the company on the Stock Exchange.

In most cases a business will trade as one of the above business types and then change its status to a PLC once it has become successful and wants to raise further funds.

The Wildfire business startup team are here to help you understand and deal with the business setup process. Talk to us and we will arrange a one-to-one interview with a business advisor or mentor to discuss these options and work with you to agree the best setup for your business.

Our advice is impartial and we do not charge for our service. We are here to help you setup your business.