What format should my Business be?
When you are setting out as a First Aid Trainer, one question that you should ask is what format should I trade under. Whilst it is possible to swap between different types, they are often different legal entities and therefore Bank Accounts and insurance policies will need to change. Anyone that has changed Bank Accounts will know how much of a hassle this is.
If you have Registered with a Business and complete a ‘New Supplier’ form then you will have to do that all over again. Better to consider all the possibilities before you start.
None of this is to be construed as Financial advice, obviously. If you want help drawing up Legal Forms, Law Depot do a good line in Business documents and Contracts.
Individual (Sole Trader)
You trade as yourself. You can give yourself a Trading name e.g. Andy Crowhurst t/a (trading as) ‘ACrow Training Services’ but you and the Business are the same. You file your income and Profit on your Annual Self-Assessment form, pay any Tax and National Insurance that is due and keep the balance. This is the simplest way of trading.
- It is cheap to set up
- It is simple to stop trading – you can literally just stop once you have settled all bills etc.
- You are liable. As you and the Business are the same, any claims made against the Business are also against you. The worst-case scenario is that you could lose everything.
- Not so many tax breaks as a Limited Company
- You need to be diligent in separating personal and Business income and expenditure.
- It can be seen as riskier by a prospective Supplier or Client
- It won’t work if there is more than one of you.
Partnership (with one or more others)
You trade with one or more other people, splitting the Business as you agree. It is vital to take advice and make sure Contracts are drawn up that cover the Partnership and what happens should someone wish to (or be forced to) leave.
- Cheaper than a Limited Company to set up and less onerous
- More tax efficient than a Sole Trader
- Business information is more private than a Limited Company
- You are jointly and severally liable. This means that you are all on the hook for everyone’s debts and if one Partner does a bunk, the Creditors can come after you and your home.
- Raising finance is a team effort as the Partnership does not exist on its own.
- Even if you leave, you could still be liable further down the line
Limited Liability Partnership (LLP)
A LLP is a legal entity in its own right and the liabilities of the partners are (unsurprisingly) limited. It is a halfway hours between a Partnership and a Limited Company
- Partners’ liabilities are limited
- More flexible than a limited Company
- More onerous reporting than a Partnership (e.g. Accounts must be filed at Companies House)
A Limited Company is a Legal entity owned by one or more shareholders. It has more onerous reporting requirements than any of the above, but also has advantages
- Separate legal entity. Shareholders’ liabilities are literally limited to the amount that they paid for the shares (which could be £1) and, unless they are negligent, Directors have limited liability if the Business runs into problems
- Generous tax breaks and allowances compared to other entities
- More respected when it comes to signing up new suppliers and clients
- Easier to raise money
- More onerous reporting requirements
- More complicated to close
There are other formats such as Community Interest Companies, Charities, different versions of Limited Companies and so on…
You need to decide what is best for you and do seek Professional advice if you are not sure. Mistakes at this stage can be costly down the line.