Different Types Of Companies You Can Register In The United Kingdom
Before you start a business, you must decide what kind of company it will be. This decision will depend on several factors. Are you a sole trader or want to register a company in the UK?
How many people are involved in your business? Are you looking for personal liability protection? In this article, we will look at the different types of companies and their advantages and disadvantages.
Sole Trader Registration
If you are a sole trader and want to register your business with the government, the process is pretty simple. You will have to fill up two forms: a registration form and a tax declaration form.
The registration form can be obtained from any HM Revenue and Customs (HMRC) office or their website.
The Advantages of Being a Sole Trader
As simple as it sounds, there are many advantages of being a sole trader in the United Kingdom. Some of these include:
- Easy registration and formation process
- No legal requirements at all
- Easy to manage
- Fewer regulations and compliances to follow
- Taxation benefits for small businesses – Small Business Rate Relief Scheme, Annual Investment Allowance for Plant & Machinery Purchase, and more.
The Disadvantages of Being a Sole Trader
Along with its many advantages, the disadvantages of being a sole trader are also worth considering before choosing this business structure:
- Limited resources: As a sole trader, you will have to bear the entire burden of running your business yourself. This can be challenging if you don’t have the necessary skills or experience.
- Unlimited liability: This means that in case of financial loss or insolvency, your assets can be used to pay off your debts. This puts your house and savings at risk. **This is one of the main reasons most people choose to incorporate their businesses as limited companies.
- Limited company status not recognized: Your business will not be seen as a separate legal entity, and you will not be able to take advantage of certain legal protections and benefits.
How To Register a Company in the UK
A limited company is formed by filing articles of association with Companies House for registration. These articles set out the rules for the company’s internal management and operations.
A Memorandum of Association is also required when you register a limited company in the UK. This document outlines the relationship between the company and its shareholders, as well as their liability.
The Advantages of a Limited Company
There are several advantages of incorporating your business as a limited company in the United Kingdom:
- Separate legal entity: A limited company is a separate legal entity from its shareholders and directors. This means that the company can own property, enter into contracts, sue, and be sued in its name.
- Limited liability: This is the most important benefit; when you register a company in the UK, directors, and shareholders are only liable to the extent of their shares in the company. This protects their assets in case of financial difficulties or insolvency.
- Increased access to finance: Limited companies have a much easier time securing finance from banks and other lenders. This is because the company is seen as a safer investment than an unincorporated business.
- Taxation benefits: A limited company can take advantage of several tax breaks, including the Corporation Tax rate (which is lower than the Income Tax rate), the Annual Investment Allowance for Plant & Machinery Purchase, and more.
The Disadvantages of a Limited Company
While there are many advantages to incorporating your business as a limited company, there are also some disadvantages to consider:
- Increased administrative burden: A limited company must comply with several regulations, which can be time-consuming and difficult to keep track of. This includes filing annual returns, holding company meetings, and keeping proper financial records.
- Costs: To register a company in the UK and maintain it, you will need to pay several fees. These include the registration fee, annual renewal fee, and company secretary’s fees.
- Limited resources: As a limited company, you are restricted in the amount of money you can raise from shareholders. This can be a problem if your business needs to grow quickly.
A partnership is formed by registering with the Registrar of Partnerships. There is no minimum or a maximum number of partners, but at least two partners are required. Partnerships can be general or limited.
The Advantages of a Partnership
There are several advantages of forming a partnership:
- Shared responsibility and liability: Partners are jointly and severally liable for the debts and obligations of the partnership. If one partner cannot pay the debts, the other partners are responsible.
- Easy to set up: A partnership can be set up without any legal formalities. All you need is an agreement between the partners setting out the terms of the partnership.
- Flexibility: Partners can agree to any arrangement they want, and the partnership can be dissolved by mutual agreement.
- Taxation benefits: Partnerships are treated as self-employment for tax purposes, which means that partners can benefit from a range of tax breaks.
The Disadvantages of a Partnership
There are also some disadvantages of forming a partnership:
- Limited lifespan: A partnership can only exist for a maximum of 25 years. After this time, it must be dissolved or converted into a limited company.
- Limited liability: Partners are not protected from personal liability in the event of the partnership becoming insolvent.
- No separate legal entity: A partnership is not a separate legal entity and does not have its legal status. This can make it difficult to enforce contracts and sue other parties.
There are several different types of companies you can register in the United Kingdom, each with its set of advantages and disadvantages. Sole traders, limited companies, partnerships, and LLPs are the most common types of companies, but there are others to choose from.
It is important to choose the right type of company for your business and to understand the implications of each option.
The type of company you choose will depend on the size and nature of your business. If you’re not sure which type of company is right for you, seek professional advice.