Startacus Join Now! /
View Our Toolkit

Choice of Trading Vehicle

Startacus RSS

by Startacus Admin

Richard from Simplicity Accounting, a Belfast based Accountancy firm give Startacus (and all you good folk) some handy pointers on choosing your business trading vehicle. Over to Richard to explain. 

Choice of trading vehicle?

First of all you may ask yourself, “what on earth is a trading vehicle?” Your trading vehicle is the legal status of your business, and beyond matters of trading vehiclethe law, it is also significantly a determining factor in the tax rules that apply to your business.

Your “trading vehicle” is a matter of choice, the options being dictated by whether your business is just yourself, or whether you are working alongside somebody else (a business partner rather than an employee). There are pros and cons for each option, and these should be weighed up before making your choice.

Working by yourself

If your start up business is just yourself, the choice of trading vehicle boils down to two options: either a sole trader or a Limited Company.

With a Limited Company, your personal assets (such as your personal savings and house) are protected in the event of business failure and a broader range of tax planning options are available to you. Very importantly for business start ups, is essential  to be a limited company to be able to be granted Enterprise Investment Scheme (EIS) approval (which would offer individuals tax incentives to invest in your business). There is often a prestige attached to trading through a limited company and it may help with your business image and (unfairly) improve your chances of being successful in a finance application.

If you trade as a sole trader, you do not enjoy the benefits mentioned above, however you have lesser administrative burden to comply with. Although you still have to prepare annual accounts to calculate your tax liabilities, these do not have to be filed on a public register and can be prepared to a slightly lower standard.

Working with a partner

When working with a partner, you are faced with three choices of trading vehicle: a partnership, a Limited Liability Partnership, or a Limited Company.trading vehicle

Working as a Limited Company has the same pros and cons as mentioned above, and a partnership is basically the equivalent of each partner being a sole trader, so also has the same pros and cons. The main difference between a partnership and sole trader is that there is a slightly increased administrative requirement as you will have to draw up a “partnership agreement” to document each partner’s responsibilities and to agree the proportion in which partnership profits are shared. Also, in addition to your personal tax return, a partnership tax return has to be completed, and submitted.

A Limited Liability Partnership (LLP) is a compromise between a partnership and a Limited Company, enjoying the same legal protection as a Limited Company (with a similar administrative burden), yet being treated in the same way as a partnership for tax purposes.

Summary

The choice of trading vehicle is an important one and should be considered at the outset of a business to avoid the complications of changing at some point in the future. Of particular benefit, particularly to high risk start ups, is the protection of personal assets granted by Limited Companies, but you must be prepared to comply with the administrative obligations, and it should be noted that this legal protection does not apply if you behave recklessly.

Practical considerations should always take priority over those of taxation, but it should be noted that there are more opportunities to reduce tax through a Limited Company, and furthermore, a Limited Company is attractive if you plan to raise capital by attracting investment from private individuals, and your business qualifies under the Enterprise Investment Scheme.

E: [email protected]

W: www.simplicity-accounting.com

T: @simplicity_acc


If you like what you see here on Startacus, why not become a member of our growing community? It's free! And you'll get all this - exclusive access to our Business Toolkit, discounts and offers galore for your business via our member only business deals, the chance to network and connect with loads of fellow self-starters, and maybe even become our celebrated 'Self-Starter of the Week' and tell the world your startup tale! Join right here for free

 


Startacus RSS
Business DealsSubmit Your Startup
Win TicketsNetwork and Collaborate
Our Latest Features



Published on: 1st December 2013

If you would like to enable commenting via your Startacus account, please enable Disqus functionality in your Account Settings.


Create an Idea!View Other Ideas, Projects or Startups
Drive with Belron Why not Sign Up?
Create Projects
Edit Projects
Self Interviews
Self Starter of the Year
Product Giveaways
Subscribe to our Newsletter
  • AIB Start-up Academy Summit returns to Belfast! 13th Jan 2017 Northern Ireland startups and entrepreneurs listen up! The AIB Start-up Academy Summit will be back in Belfast and we’ve all the important info you need to bag your free ticket to attend!
  • Newcastle Startup Week Set to Inspire 11th Jan 2017 Newcastle Startup Week - a new festival of entrepreneurship aims to inspire local people to start businesses and attract greater inward investment to the city and wider North East of England region.
  • Drive with Belron Accelerator seeks disruptive Startups 7th Jan 2017 The world’s leading vehicle glass repair and replacement service provider Belron is back on the hunt for innovative startups to joins its ten week accelerator Drive.
  • Startup News UK 2016 Review - November and December 5th Jan 2017 The Donald, Startup programmes and Accelerators, investment news, & the UK's first university campus VC firm, it's all included in part 6 of our UK Startup News Review 2016.
Startacus
Check us out at our Google+ page!