Starting a business can be an exciting time, but it can also be filled with uncertainty. This is especially true when it comes to deciding what kind of entity you want your business to be set up as. There are many advantages and disadvantages to each business type, and the one that you choose will depend very much on your individual circumstances, what sector your business is in and what your future plans for the business are.
It is possible to change the entity setup of your business, but moving from one to another can require a bit of work, depending on what you are planning to do. It is always worth working with a Cheltenham Business Coach like those from www.randall-payne.co.uk/services/business-advisory/business-coaching to help you assess your options.
Here are some of the legal entities that it is possible to set your business up under.
Sole Trader – this is the easiest way for you to establish a business and sees you registering as self-employed. You will register this with HMRC. When running a sole trader business, you effectively are the person who runs and manages the business. This means that any profits that are left after you have paid your business expenses are paid to yourself. The individual is then responsible for paying any tax that is liable for these amounts.
Limited Company – this is a privately managed company, and it is owned by the shareholders and then managed and run on a daily basis by the directors. The directors and the shareholders can be the same people. Profits that are made by the company are liable for corporation tax, and once this has been paid, the profits that are remaining can then be distributed to the shareholders or left in the company as capital. The directors will be paid a salary from within the company and the business can enter into contracts such as rental property and can hire employees.
Charity or Community Interest Company – if your business is going to be established to serve people on a charitable basis, you can have the entity set up as a charity or a community interest company. There are other regulations that surround this, and they will be required to file accounts with the Charities Commission. The profits in the business will then be used to further the work of the charity or the CIC.
