James Caan: Expert advice on choosing the right business structure

As we begin to embrace the prospects of a new year, a lot of aspiring entrepreneurs will be thinking about making the most of 2016, finally taking the plunge and starting up.

If this sounds like you, then congratulations! You have both the idea and the risk appetite to take the first steps down an entrepreneurial path and start your own business. you’ve done hours of research into your market, you know your product inside out and you’ve now reached the stage where you need to put your plans into action.

Putting your plans into action, almost certainly involves very quickly having to learn a complete spectrum of skills that have so far been put in the ” don’t need to know” box. One thing that springs to mind as something that almost certainly sends shivers down a lot of people’s spines is deciding on a business structurefrom a legal and tax perspective.

One of the reasons this question is so problematic is that there is no “one size fits all” answer, and deciding whether to run your business as a self-employment, partnership, limited liability partnership or company can change based on various circumstances.

If your business is going to trade in more than one country, you also have the added headache of trying to understand how you fit your business structure in the complex world of international tax and legal agreements deciphering the right answer here can be an expensive, albeit critical project in itself.

I meet a lot of entrepreneurs who have brilliant ideas, their creativity and innovative minds are enviable, but theyve never started a business before so when it comes to the “admin” stuff they are (understandably) baffled. This is what inspired me to write this piece.

As my in-house legal and tax team are busy assisting various portfolio matters, I must confess that the rest of this columndoesnt give you all the answers, but provides some basic information about what the common UK business structure options are, and some of the questions you should have answers to before making your mind up, or seeking out professional help.

Personally, I am a strong advocate of the latter. One of the key traits of being a successful entrepreneur is knowing the limits of your skill-set and knowing when to outsource projects to people who have more experience in a specific area than you do. You should never be embarrassed to ask for help I ask for itall the time. Im constantly looking to meet new people I can learn from and who can bring something new to my team.

Not only does this help to ensure you get the best answer from the outset, it frees up your time so you can do the things you’re best at.

So, here are some basics that Ive learnt from the countless businesses Ive invested in or founded:

As I mentioned above, there are four main business structure types in the UK: self-employment, partnerships, limited liability partnership, limited companies. The table below addresses some of the main features of each one:

At the risk of sounding repetitive, it is probably obvious from the table (which is very high level and just covers the tip of the iceberg of issues) that there is no right or wrong answer, you need to be asking yourself questions like:

• Am I likely to make profits from the outset?
• How much of my profits will be reinvested for growth?
• What is the risk of being sued for business activities?
• How will customer’s perception be altered by the type of business entity I choose?
• How will my financial projections be taxed, or how best could I use losses?
• Can I deal with the admin myself, or how much will professional help cost?

Once you’ve thought about the above, book a session with an accountant to talk through your plans and get their professional advice on the right business structure. Getting things right from the outset can mean you have better cash flow position, you are limiting your financial risk, and you are telling the right story to your future customers.