Legal Eye – June 2011

Legal Eye – June 2011

Legal Eye – June 2011

First published in News

Q I’m thinking of starting a business on my own, can you please run through the different ways in which I can do this?

A Hugh Mulley, Associate Solicitor, Debenhams Ottaway responds.

There are two main ways of starting a business on your own, either setting up as a sole trader, or trading through a limited company. Each has its own advantages and disadvantages.

Sole Trader:

The quickest and easiest way of getting started is as a sole trader. If you are a sole trader you are the business and the business’ income will be treated as your income.

Advantages: other than registering as self employed with HMRC there are few formalities in getting started.

Disadvantages: (a) because you are the business, you are personally responsible for all of its debts and liabilities. If there is a problem with the business, you could be sued personally; (b) in some cases you may have less credibility than if you traded through a limited company; and (c) because the business’ income is treated as your income, you may be unable to arrange your tax affairs as advantageously as if you traded through a limited company.

Limited Company:

If you set up a limited company (generally referred to as a “company”), whilst the company will be exclusively owned and controlled by you, you and the company will be separate legal “entities”.

Advantages: (a) your responsibility for the company’s debts and liabilities will be limited to the amount of money that you have invested in the company; (b) in some cases trading through a company may give you more credibility than trading as a sole trader; and (c) trading through a company may give you an opportunity to arrange your tax affairs more advantageously than if you traded as a sole trader.

Disadvantages: (a) there is more administration and paperwork required to set up and run a company, therefore running costs will be higher; and (b) as a company director you will have certain legal obligations which you will need to be aware of.

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