There are several ways you can set up the actual company. Here are the pros and cons of each - with links to more detailed information.
Which one you choose will dictate what sort of records you have to keep and submit, your liability for the business’s debts, and how you manage tax.
Company: pros and cons
Read more about starting up as a limited company.
The pros
- Your liability is limited to whatever money you’ve put into the business.
- You may be treated more seriously as a business, although this will depend on your area of business (most people won’t care if their window cleaner is a limited company, for instance).
- You may be able to arrange tax advantages compared with being a sole trader.
The cons
- There is more administration to carry out in terms of paperwork and filing. You’re likely to end up paying professionals like accountants to do this for you.
- There are legal obligations on directors, and you can be fined if you don’t carry them out.
Partnership: pros and cons
You can set yourself up as a standard partnership or as a limited liability partnership (LLP).
The pros
- They are easier to set up and run than a limited company.
- If you do down the LLP route, your liability is limited.
The cons
- The extra benefits of an LLP are offset by some extra duties. There are more forms to fill in, and some members will have to shoulder extra responsiblity as the ‘designated members’.
- If you’re a standard partnership, your liability is NOT limited - you can be pursued for the partnership’s debts.
Sole trader: pros and cons
Read more about starting up as a sole trader. You’ll need to register as self employed.
The pros
- You are your own boss - you make all the money, and you make all the decisions.
- Less form filling means you will spend less on accountants bills.
The cons
- You are responsible for everything - including any debts the business runs up.
- You have fewer options to minimise your tax bill.
- In some industries, you may not be treated as seriously as a limited company.
[...] here’s some help to find the answers. Check out Setting Up A Business for a great post which lays out the pros and cons of working as a sole trader, partnership or [...]
Property Development…..
First of all, I have to say that this is a great site set out in “layman” terms and is very helpful!
I’m still not sure which way to go though, so heres my story - I was recently made redundant so actively seeking employment, but also have a lump some of money that I am thinking of using to set up a Property Development Business.
My aim is to start small, buy a property and develop without using any additional finance. This would mean that profits will be small to start, and hopefully increase as things develop. I will be using builders etc to do most of the work, and hopefully find employment for myself in the interim as an employee for another company (whilst my new business grows).
Therefore, as I will be paying others to do the work, is it better to set up a Ltd co., and be sole director and also an employee of another company, or sole trader and employee?
Cheers
Hi, Phil - thanks for the compliment. My advice to you is … to talk to an accountant! You could go either way - the way you describe it, I’d have thought a sole trader sounds the best way while you’re very small. But I really would urge you to talk to someone (the accountant I use actually gave me sole trader vs ltd co advice for free when I was deciding which of his services to go for).
Also, I hope you’ve been watching Property Ladder etc - those people who are never on site when property developing always seem to come a cropper on TV…
Hi , I am a one man consultant. Could go either S Trader or Ltd Co. Choice for me is what will be the best tax saving one, e.g I want to build small office in Garden, but a decent computer etc etc, off set taking people out re Marketing my services etc. I’ll also only be doing this for a couple of years, then stop working. Money pa earned will be about 100K pa. I do not need to spend any money earnt, so if Ltd co, could pay myself minimum ( or nothing )! and take all money out when I close the business. BUT I have no idea if doing that with a Ltd co. end up me paying far less to HRMC, than if Sole Trader, where i presumably pay tax on what I have earned pa. less savings/offsets, etc ( although I do not need to spend any of the money I have reaned during the year )
Any high level advice ? Thx Rob Strange
Rob - A Ltd company gives you much more flexibility over when you pay yourself (subject to the minimum wage - you will have to pay yourself something). You can drip feed the dividends in years when it’s best tax-wise.
The costs are higher - but there are also tax savings. An accountant can explain the detail - but at £100k PA, I imagine a limited company will be the best option. Please seek professional advice though - I am not an accountant.
Why would you choose a company over a partnership or a soletrader business?
There’s nothing I can add to this pros and cons list really …