Setting up a company
When setting up your new venture, there are several different options for the type of company you can run. Get savvy quickly on what they all mean, if it just means you can impress your flatmates when watching Dragon’s Den together next time!
Sole trader
The advantages of being a sole trader include independence, ease of set up and running, and 100% return. The disadvantages include a lack of support, unlimited liability and the fact that you are personally responsible for any debts run up by your business.
Partnership
One of the advantages of being in a partnership includes its ease of set up and running. Partners can also bring a variety of skills and experience to the business.
On the other hand, problems can occur when there are disagreements between partners. There is unlimited liability and, as a partner, you are personally responsible for any debts that the business runs up, whether they were incurred by you or one of your other partners.
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 at least two must be "designated members" - the law places extra responsibilities on them. However, the formation of an LLP is more complex and costly than that of a partnership and problems can occur when there are disagreements between other members. If the partnership reduces in number and there are fewer than two designated members then every member is deemed to be a designated member.
Limited company
In a limited company, or limited liability, 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 a range of extra legal duties, including the maintenance of the company's public records, e.g. filing of accounts.
Franchise
A franchise should be seen as business model rather than a legal entity. The major advantage of a franchise is that it takes advantage of the success of an established business and support networks. 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.
Social enterprise
As with a franchise, social enterprise is considered a business model rather than a legal entity. Social enterprises are businesses that trade for a social purpose. They will invest some or all profit into social development. They represent a diverse and growing range of business activity across the UK.