The structure of your new business has repercussions in terms of tax, costs and the protection of your assets. When you decide on what structure you’ll use, keep in mind your future plans, because this may impact your decision.
There are three main structures you could consider
Sole TraderIf you’re operating on your own, this may seem an obvious choice. It’s a quick one to set up and incurs minimal costs. Bear in mind that a sole trading business can be trickier to sell, and you are taking on greater personal risk in establishing the business. It may be worth looking into how you can protect your personal assets, should anything go wrong.
PartnershipIf you’re working with a partner, you could consider this option. It lets you share the load, along with the costs of getting a business established. You’re also sharing the risk and potential liabilities.
Setting up a company means more admin and higher costs to get going. You’ll become a ‘director’ as the person who runs the company, and a ‘shareholder’ as a part-owner. Companies have additional reporting duties, but you assume less personal risk. Also, the clear structure and reporting involved, may set you up for an easier sale when the time comes.
You could also consider setting up a trust, but as this is a relatively expensive and complex undertaking, it’s less likely you’ll go this way initially. You can change the structure as your business develops, but it’s important to consult with your accountant, lawyer or advisor as you go.
Before deciding, think ahead to the future you want for your business. Ask yourself...
How am I hoping to grow the business?
If you plan to bring on additional people to run the business alongside you, a company or partnership arrangement may suit.
When do I want to sell the business?
Again, while selling any kind of business is possible, the clarity provided by a company may be an advantage and make your business more attractive to a buyer.
How sure am I that this business will succeed?
It may be that you are setting out to prove a concept or explore a business idea. If this is the case, you may not look to incur too many costs up-front, and a sole-trader or partnership model may appeal.
Whatever you decide, make sure you understand the tax implications.