What are the possible legal structures for your business in the UK

As soon as you are set to begin a new venture, you must consider how each decision will affect the growth of your business. The first decision that you must consider is the structures for your business. This structure must also align with the legal structure for your business. Focus on the pros and cons of each to decide what legal structure best suits your business.

It is only appropriate to start as a public limited company (PLC) if you plan to raise substantial funds on the country stock exchange, and in a pre-determined period. Otherwise, you have various options to choose from. Be a sole trader, form a partnership, incorporate a limited liability partnership (LLP) or limited liability company (LLC), and register a private company, so on. However, there are other models of business too such as the community interest companies, cooperatives, offshores and franchises. It depends on your business, and funds to choose a legal structure and steadily scale up with each milestone reached.

Become a sole trader

You do not pay registration fees
You keep accounts and records for all income and expenses
You earn all the profits
You are liable for all debts
All decisions are yours to make
You invest, you raise funds, you take loans against your assets

Form a partnership

Ordinary partnerships:

Partners are the legal entity
Easiest option to run a business together
It must be registered with the HRMC for tax
The liability is on all partners
Creditors can claim assets of any partner to pay off the debts
There is no protection in case of a business failure
If partner quits or goes bankrupt, or passes away, the partnership must be dissolved. The business can still continue

Limited partnerships:

It is a mix of ordinary and limited partnership
It must register with Companies House
Once registered, HRMC sets up a tax record
The liability is limited to the amount of money invested
Liability is also limited to personal guarantees

Limited Liability Partnerships:

An LLP must have a minimum of two “designated members”
These members bear additional legal responsibilities
If one designated member resigns, all other members are deemed designated
LLPs must register with Companies House
They must file an annual return with Companies House
They must file all accounts with Companies House
HRMC, once informed by Companies House, sets their tax records
The liability is limited to the money invested and finance raised

Launch a private company

A private company can be a limited or an unlimited company. A private limited company structure is limited by guarantee or by shares.

It must be incorporated at Companies House
It is not mandatory to appoint a company secretary but, if appointed, Companies House must be informed
It must file accounts every financial year with Companies House
Must file an annual return as well
Both types of private company must have at least one director and one member
Directors can be shareholders
Finance comes from the shareholders, retained profit and loans
It is liable for corporation tax and the company must inform HRMC

Private limited companies:

The finances of the business and members are separate
Unless shareholders have given guarantees they are not liable for debts
Shareholders lose money if the company fails
Individuals or other companies can be shareholders, general public do not have access to shares
It is limited by guarantee if the member liability is limited to an agreed-upon amount the members pay in case the company is wound up
It is limited by shares if the liability of members is limited to the amount unpaid on the shares they hold

Private unlimited companies:

There is no limit on the member liability
Share capital is not a must
One must take legal advice before forming such companies

Setup a specific limited company

Instead of the more standard type of companies, one can also set up a community interest company (CIC), right-to-manage company (RTM), and Societas Europaea (SE) or European Company.

Community Interest Company:

This is for businesses being run for the community
Both members and the community are benefitted
It can be both public and private
It can be limited by shared capital or limited by guarantee
It cannot be a charity
It cannot be a political party, or organisation or a subsidiary of either
It must be registered ay Companies House
The CIC regulator decides eligibility
Leisure centers, housing associations, community development trust, worker-owned cooperatives are all CIC initiatives

Right-To-Manage company:

It is owned by leaseholders
It must be a private company that is limited by guarantee

Societas Europaea:

It must be a trans-European company
It should be registered on a European Economic Area State.
It must also be registered with the Companies House
It can be formed by merger, as a subsidiary, PPLC transforming into SE, or as a holding company
It must have a share capital and shareholders
Shareholder liability must be limited
It must file annual return and company accounts to Companies House

In conclusion

It is only sensible to read and learn more about the various business structures to find out what legally best suits your business. Careful planning can affect the way you do business or perform in the market. Choosing a legal structure will affect:

The National Insurance and tax you pay
The accounts and records that you will have to maintain
The various authorities that will need information about your business
The financial liability in case the business faces financial crunch, runs into debts, etc.
The decisions of the management regarding the various business tactics and business functioning as a whole
The ways in which you intend to raise funds for the business

References

https://www.gov.uk/set-up-business
http://startups.co.uk/choosing-the-right-business-structure/
https://www.unlockthelaw.co.uk/business-structures-uk.html

By an iQualify UK staff writer

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