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1、Sole Trader v Partnership v Limited Company (Correct 2001) 1 Business credibilityThe rigours of setting up a limited company and the demands of company house provides ltd status with a little more credibility than as partnership or sole trader2 DebtsIf you are a sole trader you are liable for all yo
2、ur debts you in fact have unlimited liability this includes personal assets (e.g. car, furniture)The same applies for partners although you may also be made liable for your partners debts as wellLimited company status limits liability to the amount you paid for your shares in the first place. Person
3、al assets can only be touched if you have been trading fraudulently. However this protection can be illusory as business start-ups often depend on bank loans and overdrafts, a condition of which would be some form of personal guarantee on the loan. 3 How to Start UpSole Traders are easy to set up al
4、l you have to do is inform your local inland revenue office (see Yellow Pages) or your local Contribution Agency. They will inform Customs & Excise who will send you the necessary VAT forms. Setting up as a sole trader involves the least formalities and can be done very quickly.Setting up a partners
5、hip follows the same procedure, although it would be advisable to get a solicitor to comprise a written agreement covering profit split, work split, tax split, change in partners and other relevant issuesLimited companies can be started from scratch or bought off the peg for as little as 100 (there
6、is a small fee for name changes). The company should be registered with Companies House. Once established you must adhere to the disclosure requirements of companies house which includes covers changes in company Directors or Secretaries, Annual Return and accounts. 4) Your AccountsAs a sole trader
7、or partner you need to submit a statement of accounts, although law does not stipulate the exact format. If your turnover is less than 15,000 you need only submit a three line summary, for example:Turnover:13,847Less Purchases and expenditure: 3,017Net Profits10,830Self-assessment tax forms provide
8、a set format for your accounts. Limited Companies have to submit trading accounts, profit and loss accounts and a balance sheet. If your turnover is more than 90,000 you must submit an accountants report of your accounts, audited account are only required if turnover exceeds 350,000. 5. National Ins
9、urance(all figures for 2000-2001 as non contracted out payments)Sole Traders and Partners make national insurance payments in two ways:i) Class 2 contributions (2.00 week flat rate)ii) Class 4 contributions are payable for business profits (as defined by income tax return (i.e. after deducting capit
10、al allowances). The rate is currently 7% of profits between 4,385 and 27,820.If you form a limited company you will become a director and therefore an employee of the company and will therefore have to pay Class 1 NIC as:i) An employee: 10% on earnings between 76.00 and 535 per week. ii) An employer
11、: In addition to this the company must pay national insurance on all pay above the lower level of 76 at a rate of 12.2%. Sole Traders and Partners pay less National Insurance than limited companies for example:A Director of a Limited company paying themselves 20,000 pa would pay as Class 1 National
12、Insurance:1604 as an employee +1907 employers contribution3511However a sole trader with 20,000 would only have to pay: 104 Class 2 payments 1093 Class 4 Payments 11976. Tax on ProfitsSole Traders pay standard income tax on profits at lower rate 10%, basic rate 22% and higher rate 40% Partners are t
13、axed on their share of the profit as if they were sole traders.As a Limited Company Director you will pay income tax on your salary as any normal employee and corporation tax on any profits left for the business. Corporation tax is currently levied at 20% for small companies. Many start ups will how
14、ever pay less as anew rate of 10%has been introduced for companies with profits of up to 10,000. It is likely that you will pay slightly less tax as a limited company.7. PensionsAs a limited company the amount of tax-free contributions you can make to a pension is limitless, contributions can even e
15、xceed salary. As well as company contributions you can also invest up to 15% of your salary as a Director and get tax relief at the highest rate paid.Sole traders and Partners you can only get tax relief is between 17.5% and 40% of your taxable profits You get the best deal on pensions with a limite
16、d company8. Raising MoneyAs a sole trader or partnership you have limited means of raising money most of which depend on your relationship with your bank manager. It is also always possible to take on a (further) partner.Limited Companies have a broader range of opportunities including selling share
17、s in the company and, once you are expanding, seeking venture capital.9. Selling Part of the BusinessThis is more difficult if you are a sole trader or in partnership, again the answer may be to take on a further partner. If a part of the business can easily be sectioned off you may wish to sell it
18、as a going concernSelling bits of a private company is easier as it can be done through selling sharesCo-Operatives The management, mission and use of company assets should be controlled by the workforce Co-operatives must be run democratically, you must therefore organise a voting system. All profi
19、ts should be shared by the workforceThere are four possible legal forms of co-operative:i) Partnershipii) Limited companyiii) Co-operative society registration you will need 3 founder members. Best done through Co-operatives UK (CUK)iv) Company limited by guarantee (of its members)Key Points Forming
20、 a limited company has clear advantages: limited liability for debts, increased credibility, less tax, better pensions opportunities, more ways of raising finance and its easier to dispose of part of your business Sole trader s and partnerships have less rules to adhere to with regard to accounts, t
21、hey pay lower national insurance and enjoy better tax treatment of losses. Partners should always seek a solicitors advice in drafting and agreement Setting up as a sole trader is the easiest option, although it is not necessarily more profitable and carries more riskAPPENDIX 2Legal Format: What typ
22、e of company should you form?ISSUESOLE TRADERPARTNERSHIPLIMITED COMPANYStart upRegister as selfemployedDeed of partnershipdrawn upRegister with Registrar of companies.LiabilityUnlimitedUnlimitedLimited to money put into business.ManagementBy ownerShared responsibilityBoard of directors and managemen
23、t team.Raising FinanceMainly personal moneyPartners financeOwners finance, issuing of shares.Records and AccountsNo strict accounting or audit required. Records not available for public investigation.Accounting and audit requirements. Accounts open for public inspection.ProfitsBelong to ownerBelong
24、to partnersDividends paid to shareholders.Tax, National Insurance & PensionsProfits are taxed whether drawn or not, possibly at higher rates, National Insurance cheaper, but in general fewer benefits. Tax deductible pension contributions restricted. Losses offset against tax on other income.Employee
25、 status PAYE, high National Insurance, but full benefits. Unlimited contributions to company pension. Corporation tax on company profits. Losses retained in company.ContinuityIf owner dies or retires business may go out of existence.Partnership dissolved on death, retirement or bankruptcy.Perpetual existence. Owner and company are not same entity.SellingUsually whole business soldPossible to sell some or all shares.
