Tax & admin · 15 October 2015

How to structure your business in the most efficient way

Having the right structure will give you the best opportunity to succeed
Having the right structure will give you the best opportunity to succeed
From being a sole trader to forming a private limited company, there are numerous ways to structure your company. However, it pays to know which one will be the most efficient.

Most companies decide to found as a limited company, but this isnt the only choice you have as an entrepreneur quite the contrary. In fact, the alternatives can require less administration and offer greater flexibility. What is important to know is what each structure means.

Bivek Sharma, a partner at KPMG and head of the firm’s Small Business Accounting team, explained that as a sole trader, you run the business in your own name.

administration is very simple as you do not need to register with Companies House although you do need to register with HMRC, he said.

the downside is that there is unlimited liability your debtors can claim your personal assets even if your business collapses. You and the business are a single entity.

Moving on to setting up as a partnership, Sharma explained: This is like a sole trader structure but with more thanone person. You and your fellow partners don’t need to register your business with Companies House and debtors of the partnership can claim against your personal assets if the partnership is in financial difficulty.

As with a sole trade structure, there is the added risk of exposure to unlimited, joint and several liability for the actions or omissions of fellow partners. Mistakes can still be punished, even if they arent your own.

usually, the partners enter a formal partnership agreement that sets out how the profits and losses will be shared among them, Sharma added.

For a limited liability partnership, it’s a case of as it says on the tin a partnership with limited liability. This essentially means you are sheltered from the risks associated with being a sole trader or partnership, but additional compliance requirements are then necessary. A business of this structure must register with Companies House and supply financial accounts every year.

It does not have shared capital, rather interests, and governance principles are set out in a partnership agreement. A limited liability partnership has a separate legal personality away from its members and can sue, be sued, own property and exercise legal rights.

Onto the last structure, a private limited company, Sharma explained that this is the most common structure for companies. The way it differs from a limited liability partnership, he said, is the way in which shares can be issued to attract external investors.


 
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ABOUT THE EXPERT

Bivek Sharma has been a partner with KPMG for over ten years, specialising in accounting, tax and software. He started the Small Business Accounting division over two years ago with a goal to transform accounting services for small businesses. The team works with a huge variety of industry sectors and companies including coffee shops, technology companies, manufacturers, pubs, restaurants and retailers.

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