Once you have thought of starting up a business you have to now think of what type of entity you have to form. Before starting you have to thoroughly analyse the various aspects like investment capacity, personal skills, risk taking capability and many such factors. These factors will help you choose the type of entity you want for your business. As many other countries in the world even UK has three basic formats of business:
Sole Proprietorship: As the name suggests it is individual ownership of a business. It is not registered with the Companies House. For starting on small scale it is the best option one can choose from. If one has limited finance and cannot start on a big canvas then being a sole proprietor is the most advantageous preference. A few advantages of being a sole trader would be less documentation for registration, less control of the government; profits can be withdrawn at anytime.
But being a sole trader also has its own set of cons like carrier of the total liability, benefits and tax reliefs are lesser. Before starting up you have to register to HM Revenue & Customs. The main requirement is that you need more of product or service sense than a business sense.
Partnership: Partnership is when two or more people are the owners of a business. Even partnership, like a sole trader, is an unincorporated business that does not require registration with the Companies House. Two or more people will mean more perspectives and ideas to improve the business. Partnerships are basically of two types; general and limited liability (LLP). General partnership is unincorporated while LLPs are incorporated and registered with the Companies House. The owners of LLPs also enjoy the blessing of taking limited liability of the company.
Limited Company: A limited liability company, as the name suggests, does not burden the owner with the liability. The company is treated as a different person having its own statements and tax liabilities different from the owners. If the company defaults then only the company’s assets will be liquidated.
There are other forms as well like CIC, Coop and Franchisee. CIC means Community Interest Company who employs the profit in the benefit of the community rather than prospering the shareholders. CIC is a UK government initiative. Co-operatives are organisations through which many individuals come together for a mutual benefit; like housing co-op, agricultural co-op. Franchisee is a form of business where in you take up an already successful business model and deploy it in some other region.
One can choose according to one’s capabilities and capacities the type of entity they want to start their business as. Because once you get the perfect head start nothing can stand in your way to success.
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