Legal Structures
When starting a business one of the most important factors is going to be under what legal structure you operate.
You have a few options - the most common of these are briefly detailed below.
Sole Trader
There are many advantages of being a sole trader, these include independence, ease of set up and running, and that all the profits are generally yours.
However there are also disadvantages – including; lack of support, responsibility for all decisions and the fact that you are personally liable for any debts which are run up in the course of your business.
Partnership
One of the advantages of being in a partnership is its ease of set up and running. Also partners can bring a variety of skills and experience to the business and share the responsibilities.
On the other hand, there could be serious problems if disagreements occur, there is unlimited liability, and, as a partner, you are personally responsible for any debts which are run up in the course of the business (not just half).
Limited Liability Partnership (LLP)
LLPs retain the flexibility of a partnership as opposed to the rigid structure of a limited company, and your personal liability is limited. There is no restriction on the number of members, but the law places extra responsibilities on ‘designated members’, of which there must be at least two.
The formation of an LLP is much more complex and costly than that of a partnership and problems can occur when there are disagreements between members.
Limited Liability Company
In a limited liability company your personal financial risk will be restricted to how much you invest in the business and any guarantees you have given in order to obtain financing.
But you should remember that this type of company also brings with it many more legal duties, including the maintenance of the company's public records, eg filing of accounts with Companies House.
Franchise
The major advantage of a franchise is that it thrives off the success of an established business and support networks, often being a household name, such as Vision Express or Subway.
Its disadvantage is that your freedom to manage the business is limited by the terms of the franchise agreement. Also franchisees often pay a share of their turnover to the franchiser, which brings down overall profits and usually a substantial amount of money is required in the first instance.
Read more on starting a business as a franchise in our franchising section.
Social Enterprises
Social enterprises are businesses that trade for a social purpose and represent a diverse and growing range of business activity across the UK. The social enterprise sector includes co-operatives, development trusts, community enterprises, housing associations and more. As a result social enterprises use a wide variety of legal forms; some incorporate as companies while others take the form of industrial and provident societies. In recent years social enterprises have also been able to register as Community Interest Companies.
If this is a route that you are interested in the read this pdf guide from the Social Enterprise Coalition.
A Guide to Social Enterprise