New Business Structure Query

[AdamMilne1]

Hello, my question concerns the most appropriate legal structure for a business my partner and I are starting. I am employed full-time and fall within the higher-rate tax band. My partner is a self-employed professional photographer and registered as a sole trader. We are starting an additional business together and planning to open a brick-and-mortar greengrocer and general store. What is the most appropriate legal structure for this new business? Register as a sole trader and then set the business up as a Limited Liability Partnership with my partner, or set up a Limited Liability Company as Directors? Or is there another structure that better suits our current situation, at least whilst we are starting up? I am still determining how either of these options will affect my current employment in terms of PAYE tax, self-assessments, etc. I will remain employed for the foreseeable future as we start the new business alongside our current work. Any help to clarify some of these queries would be hugely appreciated. Thanks.

 

[Ozzy]

My thoughts are, register a private limited company (Ltd) with you both being equal shareholders holding different classes of shares, so you can pay dividends differently to each of you. You will only be impacted financially (tax) if you take any drawings from the company, if you don't, it shouldn't affect your current income.

The usual advice, get the shareholders agreement drafted and speak to an accountant too before you proceed.

 

[MyAccountantOnline]

My initial thoughts are also a limited company but I do strongly advise you discuss this with, and get proper specific advice from, an accountant.

 

[numbersrule]

Sorry, I posted here, but further online research revealed something contrary to what I had said, so I have deleted my post to avoid confusion.

 

[David Griffiths]

I think that you need to consider whether the new business is likely to be profitable from the outset. It's not at all uncommon for new businesses to show a loss in the first year or two, whether that's a genuine trading loss or a tax loss caused by claiming full allowances on new plant.

If a loss is on the cards, then going with a limited company from the outset might not be the best idea, as you won't be able to do anything with the loss other than carry it forward against future company profits. If you set up as either a normal partnership or (to a lesser extent) an LLP you would probably be able to set the losses against your personal income, even for years before you start the new business. It's something that is worth taking proper professional advice on, especially for an LLP where there are restriction on who can claim how much loss.

Once the business is trading profitably then you have the option of transferring to a conventional limited company.

As always it's down to the numbers and you have to take into account any costs and/or organisational faffing around in the context of any potential savings.

 

[AdamMilne1]

Thank you all for your helpful replies and I will take all the guidance given on board.