Sunday, 12 February 2012

Choice of Business Structure

There are four primary structures through which a business may be conducted in the UK:

Unincorporated Structures
Sole Trader

Incorporated Structures
Limited Liability Partnership
Limited Liability Company with a share capital.

There are ofcourse other structures available but we will focus on the main ones mentioned above.

Sometimes the risk involved with a particular business makes isolating that risk inside a limited liability partnership or a company an effective requirement. Otherwise, the choice of unincorporated or incorporated business structures often depends on whether trading losses are expected in the early years of trade.

Most businesses that develop to a considerable size find the inconveniences of a sole trader or partnership structure too constraining. Thus, if growth is anticipated, the choice is effectively between sole trader or partnership status initially, followed by transfer of the business to a company, or trading through a company from the start.

If losses are anticipated in the early years, and the proprietors have other taxable income, earliest relief for the losses is obtained through an unincorporated business. Company losses are effectively locked into the company. A new company is unlikely to have other income against which to relieve the losses in the short term. Thus, they must be carried forward for relief against trading profits when and if these materialise.

It is possible, and common, for a business to be operated on a sole-trader basis initially with a view to transferring it to a limited company once it has developed.

Planning Tip
It is necessary to take into account all relevant factors, not just tax factors, when choosing the appropriate business vehicle.
If losses are expected in early years, relief is obtained earlier through an unincorporated business.
0113 815 1315
15 Queens Square, Leeds, LS2 8AJ

No comments:

Post a Comment