Congratulations! You’ve decided to take the big step towards starting your own business. But, it can be a little more complicated than you first thought. How do you register a business name? How do you decide which type of business structure to go for?
There are three main business structures which you are likely to look at:
- Limited Company
- Partnership
- Sole Trader
There are several pros and cons to each business structure, and it will depend on your specific circumstance as to which business structure you wish to pick.
Sole Trader
A sole trader is considered as self employed in the eyes of HMRC. They are responsible for running their business and meeting the legal requirements which come with it. As a sole trader, you can keep all the profits after tax of the business, but you are also responsible for the debts of the business personally. This means if you were to face legal action, you have unlimited liability. So, even if the business only has £100 to its name, you personally would have to cover the debts.
The benefits are that a sole trader is low cost and simple to maintain, but there is potentially increased risk with full liability for debts.
Partnership
A partnership is a business structure where partner(s) (atleast 2) will share the responsibility for the business. This means that all partners share the profits and each partner pays tax on their share of the business. A common misconception is that a partner must be a person, but it can also be a limited company.
Like a sole trader, a standard partnership has unlimited liability and the partners are fully responsible for the debts of the business. Similarly, a standard partnership is generally easy to form, manage and run, but you have the downside of the liability. It could also be argued that a partnership setup could lead to disagreements.
Limited Company
A private limited company means that a company has shareholders, and the company has limited liability. This means that the personal assets of the owner are protected in the event of a company insolvency. However, any money invested within the business can be lost.
A limited company must have at least one director and one guarantor. A single individual can assume both positions, or there can be multiple directors/guarantors.
There are generally more fees associated with starting a limited company, and they can generally be more complex to run in terms of regulatory and reporting requirements.
The core benefit of a limited company is the elimination of personal financial exposure with the limited liability protection. However, the downsides are the requirements for annual accounts and financial reports. These are also released into the public domain, so if you wish to keep your finances private, a limited company may not be the choice for you.
Registering a Limited Company or LLP
In order to set up a Limited company or Limited Liability Partnership (LLP), you will be required to register with Companies House, which is the UK’s registrar of companies. Before you go ahead with this registration, there are a few things you should check:
- You should double check that your proposed company name is available. This can be checked simply through the Companies House name availability checker.
- The name of the business should not contain any of the sensitive words or expressions which are outlined within the government guidance documentation.
- You must make sure that you have kept your business name consistent within your application and supporting documentation. For example, it shouldn’t be ‘company name’ in one document and ‘Company name’ in another.
- You should register your business name as a trademark in order to prevent others from trading under the same name.
Once you have gone through the above list and made sure you have covered all aspects, you will be in a position to register your business name with Companies House.
Cost of Registration
The cost of registering a business name depends on which methodology you utilise to send your application. There are three options: ‘Online’, ‘Online before 3pm’, and ‘Post’.
The costs are broken down as follows:
- Online: A one off cost from £20, and it will take 24/48 hours to be registered
- Post: A one off cost of £60, and registration takes 8-10 days
Registering a Sole Trader Business
If you are a sole trader, then you do not need to register with Companies House unlike a limited company. As an alternative, you should register with HMRC so that they know you will be required to send an annual self assessment tax form to them.
There are some rules when it comes to a Sole Trader business name. It is possible to trade under your own name or use an alternative name, however the clear rules are as follows:
- The name must not include ‘limited’, ‘Ltd’, ‘Limited Liability Partnership’, ‘LLP’, ‘Public Limited Company’, or ‘PLC’
- Be offensive
- Contain a sensitive word or expression or suggest a connection with government or local authorities, unless permitted to do so
- Be the same as an existing trademark
Registering a Partnership
In setting up a partnership, you and your partner(s) must share responsibility for the business. In setting up a business partnership, you must follow the following rules:
- You must name your partnership according to government rules by now including a sensitive word
- You must assign a nominated partner who will be responsible for managing the partnership’s tax returns
- You must share your profits between the partners
If you are put forward as the nominated partner, then you will be responsible for sending the tax returns for the partnership, and you must register the partnership with HMRC for self assessment. All partners will be required to send in their own tax returns as individuals.
A partnership can be registered online, or by post by either filling in the SA400 or SA401 forms which can be found on the Government website. When filling out all paperwork for the partnership, it is essential to make sure all partners’ names are included.
