Choice of Trading Vehicle

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 the 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.
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: richard@simplicity-accounting.com
W: www.simplicity-accounting.com
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
Subscribe to our newsletter
If you would like to receive our startup themed newsletter, full of the latest startup opportunities, events, news, stories, tips and advice, then sign up here.
Berlin-based music startup, Jambl secures $500,000 investment from Gismart, a leading developer and publisher of entertainment-focused apps and games

We asked the Hollabox App team to share their top predictions on how technology will challenge fake news and reviews in 2020.

Further development by Wishu, the social marketplace aimed at generation Z creative freelancers, waith the launch of its iOS app

Tracworx is a real-time patient tracking system that results in excellent patient care throughout the entire patient journey

The environmental initiative, Returnr that aims to replace single use takeaway packaging with equivalent reusable solutions

Thriftify is an online platform that connects the most sustainable & ethical source of goods with consumers who care...

Women in Tech themed half-day event and startup pitching competition to take place during next year’s Derry City and Strabane District Council’s Enterprise Week

HyperJar is a FinTech startup and digital app which is making it easier for people to plan, share and spend their money

More FinTech headquarters based in London than any other city according to report just published from Savills and flexible office specialist Workthere

PropTech innovation continues with the launch of Track, a property and money manager app aimed specifically at younger homeowners
Published on: 1st December 2013
If you would like to enable commenting via your Startacus account, please enable Disqus functionality in your Account Settings.







- Gismart invests $500k in innovative music startup Jambl 9th Dec 2019 Berlin-based music startup, Jambl secures $500,000 investment from Gismart, a leading developer and publisher of entertainment-focused apps and games
- Derry & Strabane Tech event championing women in tech and tech inclusion announced 5th Dec 2019 Women in Tech themed half-day event and startup pitching competition to take place during next year’s Derry City and Strabane District Council’s Enterprise Week
- London leading the way for global FinTech headquarters 4th Dec 2019 More FinTech headquarters based in London than any other city according to report just published from Savills and flexible office specialist Workthere
- London-based startup Perlego raises £7 million 19th Nov 2019 Major investment news for Perlego, the London-based startup that is on a mission to make education material accessible for all