Now that you're going ahead with your amazing and exciting new business, you do need to decide what type of business it should be. There are quite a few different types – but most suitable for a new or a small business is Sole Trader or perhaps Limited. There are also Partnerships: they're kind of like having 2 sole traders bound by a legal agreement drawn up by a solicitor. I won’t go into Partnerships here but do let me know if you would like more info on them.

Sole Trader

Pros

• Really straightforward

• Minimum record keeping

• Easy to set up as you don’t need solicitors or accountants if you don’t want them

• Smaller penalties than Limited for getting paperwork wrong

• Can easily take money out of the business for your own use.

• Can 'get away' with using a personal bank account if you want to. (there's no legal requirement to ever have a 'business bank account' product to be honest)

Cons

• Business not separated from your personal finances – your personal assets (including your home if you are a homeowner) could be at risk if the business fails

• Raising finance can be difficult as many banks are reluctant to fund a sole trader

• Anyone can have a business the same name as your business.

Limited Company

Pros

• Owners (shareholders) are have limited liability if the business fails and so their assets are largely protected.

• Looks 'more professional' with Ltd at the end of the company name.

• Some business customers have a policy of only trading with Ltd companies (i.e. not sole traders)

• No other limited company can be called the same name as your limited company or, to some extent, anything that even looks/sounds like yours.

• You can sell shares to family, employees or other businesses and acquaintances to raise funds for the business (you cannot float on the stock market)

• Generally more tax-efficient than a sole trader once you get to the £20K / £30K earnings mark.

Cons

• More difficult to set up

• Year-end reporting more labour intensive so more likely to need an accountant

• Company profit has to be shown on Companies House – some do not like this transparency

• More record keeping

• Pay corporation tax on profits

• Pay income tax on salary (as you will legally be an employee as well as the owner)

• Must register with and report annually to Companies House & pay their annual fees.

• Greater penalties than sole trader if you get your paperwork wrong

• Can't just withdraw money from the business without formally recording it as a salary, dividend or loan

• Banks probably won’t let you have a personal bank account with 'Limited' in the name – they will all but force you to have a business bank account product.

Any questions? Feel free to get in touch!

You can find me over on www.money-bee.co.uk or click here to send me a message!