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Business Start Up Advice

Deciding upon the legal identity and status of your business can be tough, but remember, the status of a business can bring 'high status'.

Becoming CEO of a PLC does sound great, but floating a company is not always best for your business. Choose wisely and ensure that you remain in control.

LIMITED COMPANIES

The limited company is regarded as the best thing that the Victorians ever did for us, although I would argue that the flushing toilet was equally important. A limited company is a completely separate legal entity from those who run or work for the company (thus the directors have limited liability). With that definition come a number of benefits and disadvantages.

By creating a limited company you can give the impression of size and experience very easily, even if the business is completely new. Customers will be happier writing cheques to XYZ Ltd. than to John Smith. However, some suppliers are less keen for small companies to be limited because it can give the impression that you are protecting yourself from risk, which ironically makes you a risky bet. Banks tend to feel the same and in a bid to ensure that any money they lend to a business is in some way protected or secured, will ask the directors to sign a mandate ensuring that if the business is unable to meet repayments, you as directors will. In the UK, filing accounts with Companies House is a legal requirement if you become a director of a limited company and there are knock-on costs if you require your accountant to prepare these documents for you.

PARTNERSHIP OR LIMITED LIABILITY PARTNERSHIP

A partnership works for a number of industries and types of businesses exceptionally well, and not so well for others. The classic examples of partnerships are law firms and accountancy firms. With a standard partnership the partners have unlimited liability and this means you would be liable for the business debts of your partners even if you were unaware of the debt. There are, however, tax advantages to forming a partnership. A recent invention is the limited liability partnership, which is almost a fusion of partnership and limited company in that the partners enjoy the protection of limited liability but remain partners rather than directors.

SOLE TRADER

A sole trader is on the bottom rung of the status ladder. With that come quite a few benefits and a few disadvantages, but most importantly it speaks volumes about the perceived 'size' of your business - which can work both for and against you. A sole trader has unlimited liability and so is responsible for all the debts of the business; however, more and more large firms are happy to deal with sole traders because they appreciate the risk that the individual is taking and feel they are more likely to get a good service and value for money.

PLC

Going public is often seen as the king of the status pile - 'publicly owned' immediately conjures images of size and access to capital, even though the truth of the matter may be far different. PLCs work very well for creating a buzz and interest in your company, but with the extra cash raised from the flotation and shareholders come your commitment to being scrutinised and having to appease shareholder sentiment and the need for return. It is important to understand that the shareholders own a PLC, not the directors of the business. You could be voted off the board, but equally you could be managing director of a multi-million pound international conglomerate far quicker than through running a partnership or limited company.

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