Last edited 23 May 2016

Forms of practice

Contents

[edit] 3 main types

  • Sole trader
  • Partnerships:
  1. traditional
  2. limited partnership
  3. Limited liability partnership

[edit] Sole Trader

  • Trade in own name
  • easy setup
  • no legal structure (acts to abide by)
  • Responsible for yourself so face the risks alone
  • High personal risk - personally liable
  • do own accounts
  • Can cease to exist easily.

[edit] Partnerships:

[edit] Traditional Partnership

  • Relation between 2+ people in business with aim for profit.
  • governed by 'Partnership act 1890'
  • easy setup
  • not registered with companies house - no public disclosure of accounts
  • joint & several liability - personally responsible for each others errors
  • should have 'Partnership agreement'
  • deed of adherence - signed by incoming partners to agree with partnership agreement.
  • partners not a cost of business unless salaried.
  • profit taxed then distributed to partners.
  • Pay NI
  • pay tax 2 x p/y
  • audited

[edit] Limited Partnership

  • 1+ general partner- operates partnership - liable for debts and obligations.
  • 1+ limited partners with capital but no liability as not running firm.
  • Registered at Companies house.
  • No public disclosure of accounts.
  • often used for SPV ( special purpose vehicle) - often 1 of project partnerships.
  • should have 'Partnership agreement'
  • deed of adherence - signed by incoming partners to agree with partnership agreement.
  • partners not a cost of business unless salaried.
  • profit taxed then distributed to partners.
  • Pay NI
  • pay tax 2 x p/y
  • audited

[edit] Limited Liability Partnership (LLP)

  • Trade in company name
  • all partners can participate in management.
  • Partners liability limited to assets in firm - not affected personally.
  • Registered at CH
  • accounts publicly disclosed
  • partners not a cost of business unless salaried.
  • profit taxed then distributed to partners.
  • Pay NI
  • pay tax 2 x p/y
  • audited

[edit] Limited liability company

  • 1 director (employer)
  • owner is shareholder. minimum 1 shareholder
  • Liability limited to value of share - LOW RISK
  • banks/ landlords may seek personal guarantees as liability may be too low.
  • Registered at CH
  • Public disclosure of accounts
  • articles of association + memorandum: forms companies constitution, directors resp, type of business, means shareholders have control over board of directors.
  • director is cost of business so taxed on takings.
  • profits taxed.
  • dividends taxed.

[edit] Deciding Factors

  • Risk
  • Client perception
  • Admin + set up
  • Plan for future
  • Tax & NI