Company structures – the pros and cons.

There a four company structures that a business owner can choose from, each are very different in their ability to protect your assets, generate cash inflows and create timing benefits.

These can be explained as:

  1. Sole trader, this is defined as you run your own business as an individual and are self-employed. Being a sole trader means that you are responsible for the business keeping adequate records, paying income tax and Class 2 and Class 4 National Insurance and its potential debts and not that you work on your own. If things go wrong then they can chase you personally for all of the debt. The tax due on a sole trader is paid in half yearly instalments in advance on 31st January and 31st July each year with any underpayment being due on the next 31st January.
  2. Partnership, this is as per the sole trader but is made up of two or more individuals that share the profit and liabilities of the business. If things go wrong then they can chase each partner personally for all of the debt, in turn. The tax is due as per the Sole Trader.
  3. Limited Company is an organisation that can be set up to run a business, it is responsible in its own right for everything that it does and its finances are separate to your personal finances. It is set up at Companies House and there are specific reporting requirements for this structure, discussed later. Any profit this type of organisation makes is owned by the company, after it pays Corporation Tax, the company can then distribute its retained profits between its shareholders. The tax due on a Limited Company nine months and one day after the year end, this yields a cash flow advantage over the other structures.
  4. Limited Liability Partnership (LLP) is a partnership in which some or all partners have limited liability. It therefore exhibits elements of both partnerships and limited companies. In a LLP, one partner is not responsible or liable for another partner’s misconduct or negligence. The tax is due as per the Sole Trader.

Still unsure which one is the best fit for you then contact us via the contact page at http://www.milestone-solutions.co.uk

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