Sole Trader or Partnership?

[Rolypoly]

Hello,

Im looking for some advice in relation to starting up a party supplies business.

My fiance and I have been planning to start up a party supplies business, with an e-commerce website in our short term plans. We're aiming to go ahead with our plans within the next few months by starting up, however we're still unsure of a few significant things.

In the initial first year of trading (from May 2013- May 2014) I will be practically operating and managing the business, while my fiance finishes her degree at University. Because of her commitments to her studies, she is unlikely to play a part in managing the business within this year. Ofcourse she will have a say in all the important business decisions, but that will be about it. Once her degree concludes in July 2014, she will be focused solely on the business.

We've looked into sole traders and partnerships and found that generally they are similiar and fairly low risk for people new to business.

Can anyone advice on what they feel we should be looking to be? The one option we considered would be myself being a sole trader, as I will be, for the first year, the 'sole' owner and operator of the business, however, as the idea is one that is jointly shared, and our visions of the future see us both sharely managing the business we assumed that we would have to be seen as a 'partnership'.

Generally I am just looking for advice on what we should do? and if there are any significant implications of choosing a 'partnership' over sole trader. Would we need to register at companies house if we were to choose a 'partnership', and are there any significant additional costs to choosing a 'partnership' that one would not occur if a sole trader?

Thankyou in advance to anyone who helps!

 

[Ola1]

Personally, i 'd prefer a limited company to either sole trader or partnership.

I dunno where you get the impression that being a sole trader is low risk, however, you might want to spend some time reading the thread linked below.

http://www.ukbusinessforums.co.uk/forums/showthread.php?t=60813

 

[TODonnell]

As a sole trader you are personally liable in the event of a legal claim against your business.

Unless you are operating truly as a tradesman, then I'd form a company, especially if you are buying stock and there is more than one person involved.

This would help in deciding who gets what share of the business (i.e. Shares!)

Also, unless the other person(s) is/are making significant contributions without which the business could not function i.e. they're irreplaceable, then I would think long and hard about giving out shares or making people directors.

Just my 2P.

 

[Ozzy]

Generally I am just looking for advice on what we should do? and if there are any significant implications of choosing a 'partnership' over sole trader. Would we need to register at companies house if we were to choose a 'partnership', and are there any significant additional costs to choosing a 'partnership' that one would not occur if a sole trader?

Are you are talking about an LLP (Limited Liability Partnership)? If so then yes that does register at Companies House, if a traditional Partnership then no.
An LLP offers you the liability protection of a traditional Limited Company that most people are used to but you are taxed on an individual basis like a traditional Partnership.
Basically the decision between an LLP or a Limited Company is pretty much solely down to how you as the business "owners" will be taxed. An example would be use of a company vehicle is easier on the tax through an LLP then a Limited Company. This is where an accountant would review your own circumstances and advise you.

As has already been suggested, most would go for a Limited Company for the clarity of ownership with the shareholding.

I'd seriously look at the two options being an LLP and a Limited Company but run your business projections past your accountant first before deciding. Then pop to my website to set it up

 

[Yorkshire&Online]

Although a limited company or limited liabilty partnership does offer more protection, it also brings with it more costs, legislation and the inability to offset losses against your other income.

I have come across numerous forum posts and actual enquiries where people have set up companies for very small low scale start-up businesses, then regretted it and find it is not so easy to cease trading or to preapre accounts etc as it is as a sole trader or ordinary partnership.

Sometimes starting out as self employed can make more sense, then you can incorporate the business later as your profits grow. But if you do want more protection, go down the company or LLP route.

A sole trader set up is the most simplest or if you set up an ordinary partnership or LLP, your profits or losses will be split between you as per the agreement which could have advantages depending on your other incomes. But there will be additional tax returns to copmplete etc.

You can find more details about how to structure a new start-up on our website:

http://www.brown-royd.co.uk/services/business-start-ups