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There are many factors to consider when setting up a business. This can cause professionals to feel uncertain about their best option.
In such cases, seeking advice from a solicitor is a common step aspiring business owners take. This blog outlines the 5 most important things to consider when setting up a business.
If you need further help, contact our expert team by calling 0203 007 5500 or sending an email to info@brittontime.com
1. Liability.
When starting a new business, liability is a key factor to consider. There are many benefits of limited liabilities and the protection it offers businesses.
For more information on how this affects shareholders and directors, check out our incorporated and unincorporated business blogs.
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2. Tax.
Tax considerations are often crucial when choosing to set up a business.
The primary goal for most business owners is generally to generate profits for owners. Therefore, taxes that owners pay will affect how they run their business. Whether incorporating or remaining unincorporated is more beneficial depends on the financial situation of the business and owners.
Unincorporated businesses may provide certain tax benefits to their owners. The owners may be eligible for various tax deductions and credits. These include:
- Home office deductions
- Vehicle expenses
- Startup expenses
Additionally, unincorporated businesses have more flexibility in accounting and record-keeping requirements. This can help to reduce administrative costs.
Incorporation can also offer many tax benefits. In the UK, incorporated companies are subject to lower tax rates than individual tax rates. This allows them to take advantage of various corporate and capital gains reliefs.
Furthermore, they may deduct certain business expenses, such as salaries, rent, and equipment, from their taxable income. This can reduce the overall tax liability of the company and its owners.
It is important to speak to a solicitor and tax professional to determine the best course of action when setting up a business. Contact our expert team by calling 0203 007 5500 now.
3. Formalities.
As seen in our unincorporated blog, operating a business as a sole trader or partnership is possible without even realising it. This is because there are no formalities necessary for their establishment. Despite no formal requirements, partners should be aware their business is subject to the default agreement set out in the Partnership Act 1890.
You don’t have to prepare any legal documents when setting up an incorporated business. Once established, they have limited formal accounting and financial publishing requirements.
Setting up a limited company or LLP requires more time and money, often requiring legal or accountancy advice. These require the completion of minutes for meetings and maintaining specific statutory registers and records. Many companies must file certain documents, including an audit of their accounts with Companies House.
Finally, companies are subject to detailed requirements and strict rules under the Companies Act 2006. This statute governs how decisions are made and which decisions are allowed. There is much less freedom than afforded to sole traders and partnerships regarding decision-making.
These obligations and limitations are the price that you’ll pay for a company to enjoy the benefits of limited liability.
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4. Status.
Individuals and businesses can prefer to trade with companies over partnerships or sole traders.
The common perception is that companies are the preferred medium for successful, established businesses. The wealth of publicly available information about companies bolsters this.
This means there are benefits to the accounting obligations that companies require. Consequently, by boosting their status, it improves their ability to trade.
5. Business finance.
It can be challenging to expand or set up a business without sufficient financial resources. Many businesses rely on loans to run efficiently.
Incorporated businesses have a significant advantage over sole traders and partnerships when securing loans. For example, they can obtain a floating charge, which is a charge (or security) over all of the business’ assets. This type of charge is not available to sole traders and partnerships.
What structure should I choose when setting up a business?
Overall, there is no one-size-fits-all approach to choosing a business structure.
Based on incorporated and unincorporated business, you may think incorporating is a no-brainer because of limited liability. However, this may not be the most important factor for some businesses.
If a business doesn’t anticipate incurring significant debts, limited liability may not be as much of a priority. Additionally, some business owners may prefer not to make the business’s affairs public, which is required for limited companies. In this case, a general partnership may be a better fit.
It is essential to carefully consider each type’s advantages and disadvantages and seek professional advice before making a decision.
How can Britton and Time Solicitors help?
Setting up a business can be a stressful process, especially if you’re unfamiliar with all the legal documentation that comes with it. That’s why it’s best to consult an expert when doing so.
To arrange an untimed initial consultation with one of our solicitors, simply call us on 020 3007 5500. or send an enquiry to info@brittontime.com
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