The 'legals'- Dotting the I's and crossing the T's

Understanding what you must do to comply with the Law

Choice of trading format

In the UK there are 3 main choices of trading format that you can choose from, depending on preference or circumstances.

They are:

• Sole Trader (aka self-employed)
• A Partnership (with the variation of a Limited Liability Partnership. or LLP)
• A Company

A 4th exists, known as a co-operative, but is generally, a much less used format.

Sole Trader

A Sole Trader is a simple and effective way of getting into business with the minimum of cost or paperwork. You have to complete a straightforward registration process with the Inland Revenue, within 3 months of starting to trade,and you have to keep some form of accounts. You can employ other people to work for you, so the term ‘sole’ is a bit misleading. The main point to bear in mind is that, you ARE the business and as such, you have total responsibility for all your actions and, in particular. any debts you accumulate. This really means that if you incur debts that you cannot cover by your business activities, you will have to meet them from ANY other assets including, if necessary, your home.

You can trade in your own name or use a business name, if it is not already in use by a limited company (check with Companies House ) but using an available trading name will not give you any rights to it. You will have to take steps to protect the name by, for example, forming a DORMANT limited company..

Partnership

A Partnership is like 2 or more sole traders joining together. After they share out the business profits, they account individually to the Inland Revenue for their tax liabilities and payments. Each partner has responsibility for the business' activities and liabilities, on a ‘joint and several’ basis. Always have a partnership agreement drawn up by a solicitor, setting down what each partner will take out, or put in, in terms of time, responsibility and money.This will help to avoid arguments over trivial issues that so often ruin good relationships and enable the smooth transition of ownership if a partner wants to leave.

Limited Company

A company requires a minimum of 2 officers: a director and a company secretary. In small businesses these roles are often taken by a husband and wife, partners or friends. If you want to be in sole charge, take a strong majority shareholding. An accountant could act as the Co Sec. Discuss the structure of a company with your legal adviser before doing anything, or making offers/promises to future partners. Where shares are equally divided, a shareholder’s agreement may be a good idea ( as in Partnerships).

For help with forming a company, use a company formation agency like the

National Business Register  www.anewbusiness.co.uk (ref 11071 )