Sally McFadden is Head of Commercial Property in the Business Services Department of Thomson & Bancks, offering packages to both start-up and established businesses to help them manage their legal affairs more efficiently.
Here, Sally provides us with her advice on choosing the legal structure for your start-up.
This is a simple structure and its advantages include low costs and overheads, no requirements for company accounts or audits and retention of 100% of profits. However there are disadvantages of going it alone!
Growth is restricted as the business is tied to the number of hours you personally can work, only personal loans may be available; there is no-one to cover absences and you have unlimited liability for debts.
Is a problem shared a problem halved? With a partnership the risks and costs are shared and responsibilities and liabilities can be set out in a partnership agreement. You may have more people available to cover absences and maybe more capital for investment.
There are pros and cons with every structure, and as partnerships have no separate legal identity, partners have unlimited liability for debts. Partner disagreements may put the whole business at risk.
Although not a legal requirement, forming a Partnership Agreement may help with how the partnership is operated and how assets are split if worst case the business doesn’t’ succeed.
A Limited company has the benefit of being a separate legal entity with limited liability for debts, an unlimited life span and wider funding options. The business may also be perceived as more professional.
However there are considerable costs in setting up and running a company and complying with stringent accounting and auditing procedures. In addition directors of new companies are often required to give personal guarantees to secure funds.
Limited Liability Partnership
An LLP is a hybrid which takes the advantages of a limited company whilst maintaining the flexibility of a partnership. Partner’s liability is limited to the money they have put into the business and the amount of any personal guarantees provided.
However at least two partners must be designated as “members” and will have additional responsibilities; LLP’s must be registered at Companies House and file annual returns and there may be complex tax implications.
Community Interest Company
This is a new type of company suited to community or social enterprises rather than profit based businesses. You must pass a community interest test and profits and assets must be used for the benefit of the community, this should be reflected in the Memorandum and Articles.
A CIC may give access to funding for social enterprises but you must have a genuine purpose to provide a community benefit.
Sally can be contacted at the Cheltenham, Pershore or Tewkesbury offices on 01684 299633 or via email at email@example.com if you would like to find out more on start-up or established business packages or any other commercial or property legal issues.