You must choose a structure for your business. This structure will define your legal responsibilities, like:
- the paperwork you must fill in to get started
- the taxes you’ll have to manage and pay
- how you can personally take the profit your business makes
- your personal responsibilities if your business makes a loss
You can change your business structure after you’ve started up if you find a new structure suits you better.
This seems relevant to us because of the possibility of later growth and change in the structure of the studio. So when looking at a company type I should bare in mind the fact that it doesn't have to fit for the entirety of the studios hypothetical life span.
Types Of Company
2. Sole trader
If you start working for yourself, you’re classed as a self-employedsole trader - even if you’ve not yet told HM Revenue and Customs (HMRC).
As a sole trader, you run your own business as an individual. You can keep all your business’s profits after you’ve paid tax on them.
You can employ staff. ‘Sole trader’ means you’re responsible for the business, not that you have to work alone.
You’re personally responsible for any losses your business makes.
(This doesn't seem to take into consideration any joint ownership or responsibility, possibly it is specific to companies with one 'owner' only)
3. Limited company
A limited company is an organisation that you can set up to run your business - it’s responsible in its own right for everything it does and its finances are separate to your personal finances.
Any profit it makes is owned by the company, after it pays Corporation Tax. The company can then share its profits.
Ownership
Every limited company has ‘members’ - the people or organisations who own shares in the company.
Directors are responsible for running the company. Directors often own shares, but they don’t have to.
Legal responsibilities
There are many legal responsibilities involved with being a director and running a limited company.
Types of company
Limited by shares
Most limited companies are ‘limited by shares’. This means that the shareholders’ responsibilities for the company’s financial liabilities are limited to the value of shares that they own but haven’t paid for.
Company directors aren’t personally responsible for debts the business can’t pay if it goes wrong, as long as they haven’t broken the law.
(This seems more in the ball park of what we would want. However, the introduction of shares to a studio company seems a tad strange and if we were to select this option then we would need to ascertain how we would approach the organisation of shares and directors.)
Partnership (not limited to two 'partners')
Unlike a limited company (e.g. Marks and Spencer PLC) where shareholders' liabilities are limited to the fully paid-up value of their shares, partners are jointly and severally liable for the full value of any partnership debts.
Another difference is that partnerships have no separate legal existence of their own, the firm's name is merely that, it is not a legal entity: e.g. when suing a limited company, you sue the company itself, not the directors or staff. But when you sue a partnership you sue the partners themselves.
http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm25091.htm
Something that did attract my attention was the difference between a partnership in Scotland. In this situation a scottish partnership has an existence beyond the people who own in, which could be beneficial if someone wanted to leave. However, there is the draw back that ownership is in the form of credit, not necessarily specific agreed items.
5. Limited partnership and limited liability partnership
Your liability for business debt differs depending on whether you’re a limited partnership or limited liability partnership (LLP).
You can share all the business’s profits between the partners. Each partner pays tax on their share of the profits.
Limited partnerships
The liability for debts that can’t be paid in a limited partnership is split among partners.
Partners’ responsibilities differ as:
- ‘general’ partners can be personally liable for all the partnerships’ debts
- ‘limited’ partners are only liable up to the amount they initially invest in the business
General partners are also responsible for managing the business.
Limited liability partnerships (LLPs)
The partners in an LLP aren’t personally liable for debts the business can’t pay - their liability is limited to the amount of money they invest in the business.
Partners’ responsibilities and share of the profits are set out in an LLPagreement. ‘Designated members’ have extra responsibilities.
(from chatting about this on the day we got the brief and by comparing the information from the different types of company this limited liability company seems the most flexible format for our company, because of the possibilities of equal multiple owners without the necessity of shareholders and all the complexity of that legal situation that implies.) I did some extra research into the decisions we would need to make were we to set up a limited liability partnership or company.
4. Members' responsibilities
You must have at least 2 ‘designated members’ at all times - they have more responsibilities, eg keeping company accounts. You can have any number of ordinary members.
Making the LLP agreement
You should make a limited liability partnership (LLP) agreement with any other members as part of setting up your LLP. This document sets out how the LLP will be run, including:
- how profits are shared among members
- who needs to agree decisions
- members’ responsibilities
- how members can join or leave the LLP
A solicitor can help you prepare an agreement or you can write your own.
Responsibilities of all members
Members must carry out their duties and meet their legal responsibilities set out in the LLP agreement.
Every member must register for Self Assessment with HM Revenue and Customs (HMRC).
Responsibilities of designated members
Designated members have more responsibilities than ordinary members and must:
- register the partnership for Self Assessment with HMRC
- register the partnership for VAT if you expect your business’s sales to be more than £81,000 a year
- appoint an auditor if needed
- keep accounting records
- prepare, sign and send annual accounts to Companies House
- send an annual return to Companies House
Designated members must also:
- tell Companies House about any changes, eg to the registered name or address, or members
- act for the LLP if it’s wound up and dissolved
LLPs are Britain’s newest business vehicle especially suited to professional services companies. They may be seen as a hybrid between limited liability companies and traditional partnerships, in that they offer the limited liability available to limited company shareholders combined with the tax regime and flexibility available to partnerships. The number of partners is not limited but at least two have to be ‘designated members’ responsible for filing annual accounts.
Just as with a limited company the LLP model protects its members’ assets, limiting their liability to however much they have invested in the business and any personal guarantees they may have given when raising loans. But it doesn’t give you the same tax advantage.
As in an ordinary partnership, the members’ share of profit is taxed as income – each member has to register with HMRC as self-employed. LLPs also have to register at Companies House and there should be a members’ agreement stating what share of the profit each member should receive.
If the business you are starting is in the financial services space, for example, and you are hoping to grow it by attracting other professionals to join you it may be worth considering an LLP from the outset. It has been adopted with enthusiasm by some of the largest accountancy and law practices in the UK.
I am going to take what I have learned back to the rest of the group and then once we have made a collective decision I will do some more thorough research and decision making about what roles we would legally play within the company, as touched on above.
No comments:
Post a Comment