engage magazine issue 003 \\\\\\\\\\\\\\\'07 - Page 40

40 ASK ENGAGE Quick Guide HOW TO PART 3 Sole trader, Partnership or Limited Company? If you decide to go into business you have to legally register your business – but how do you know which legal structure is right for you? In this issue engage explores the various legal structures that you can register your business under. Registering Limited Liability Partnership (LLP) A Limited Liability Partnership (LLP) is similar to an ordinary partnership in which a minimum of two individuals or limited companies share the risks, costs, responsibilities and profits of the business. However in a LLP, liability is limited to the amount of money each person has invested in the business and to any personal guarantees they have given to raise finance. At least two of the members (partners) must be designated members and extra responsibilities are legally placed on them. If the LLP reduces in number and there are fewer than two designated members then every member is deemed to be a designated member. Members raise money out of their own assets, and/or with loans. Each member takes an equal share of the profits, unless the members agreement specifies otherwise. Your Business Main types Private limited companies can have one or more members, eg shareholders but they cannot offer shares to the public. Public limited companies (plcs) must have at least two shareholders and can offer shares to the public. A plc must have issued shares worth at least £50,000 before it can trade. Private unlimited companies – are usually created for specific reasons. The company must be registered (incorporated) at Companies House and must have at least one director (two if it’s a plc) and a company secretary, who may also be shareholders. In a plc, the company secretary must be professionally qualified. Sole trader This is the simplest way to run a business, and does not involve paying any registration fees. You make all the decisions on how to manage your business, you keep all the profits the company makes but you are personally liable for any debts that your business runs up. To be a sole trader you need to be self-employed. Partnership In a partnership, at least two people share the risks, costs, and responsibilities of the business. Similar to being a sole trader, each partner is self-employed, and each takes a share of the profits. Decision-making and any debts that the business runs up is usually shared by each partner. The main disadvantage of a partnership is if one of the partners resigns, dies or goes bankrupt, the partnership must be dissolved but the business may not necessarily need to stop. Limited liability companies Limited companies have their existence, meaning that the company’s finances are separate from the personal finances of their owners. Shareholders may be individuals or other companies. They are not responsible for the company’s debts unless they have given guarantees (of a bank loan, for example). However, if the company fails they could lose the money they have invested in the company. Franchise When you buy a franchise, you (the “franchisee”) buy a licence to use the name, products, services, and management support systems of the “franchiser” company. This licence normally covers a particular area and runs for a limited time, after which it should be able to be renewed, if you meet the terms of the franchise agreement. Most franchise businesses takes different legal forms - most are sole engage | uk ISSUE THREE 2007