Considerations When Starting a Business – Part 2
There are three common types of business structure:
This is the simplest form of business since it can be established without legal formality. However, the business of a sole trader is not distinguished from the proprietor’s personal affairs.
A partnership is similar in nature to a sole trader but because more people are involved it is advisable to draw up a written agreement and for all partners to be aware of the terms of the partnership. Again the business and personal affairs of the partners are not legally separate. A further possibility is to use what is known as a Limited Liability Partnership (LLP).
The business affairs are separate from the personal affairs of the owners, but there are legal regulations to comply with.
The appropriate structure will depend on a number of factors, including consideration of taxation implications, the legal entity, ownership and liability.
Books and Records
All businesses need to keep records. They can be maintained by hand or may be computerised but should contain details of payments, receipts, credit purchases and sales, assets and liabilities. If you are considering purchasing computer software to maintain your records, obtain professional advice.
The books and records are used to produce the accounts. If the records are well kept it will be easier to put together the accounts. Accounts must be prepared for HMRC and if a company is formed there are strict legal requirements as to their layout. The accounts and company tax return must be submitted electronically to HMRC in a specific format (iXBRL). Presently Companies House do not require annual accounts to be submitted electronically in iXBRL format, however there is software available to cater for electronic filing if preferred.
A company and a LLP may need to have an audit and will need to make the accounts publicly available by filing them at Companies House within a strict time limit.