You have had a great idea and now you are implementing it by building a new startup based on it. Before you start materializing your idea into a startup, what are the key considerations to consider before setting up a new business? You might have a million things floating in your head regarding key considerations before you initiate, but allow us to nudge you in the right direction by telling you that the most important action to take before you start your new startup is to consider which business structure to go for your new startup.
If you are a startup in the UK then there are 5 business structures that your new business can adopt to and these are sole trader, partnership, limited liability company (Ltd), limited liability partnership (LLP), and the public corporation. To get to this point, you need to hire a startup business accountant who can make you aware of such things, so you don’t find yourself in a difficult situation in the later years of your business.
If you are working alone then this business structure is well suited for you, especially for freelancers and self-employed people. This business structure can be used by businesses that offer services directly to earn revenue such as real estate agents, graphic designers, plumbers, hairdressers, etc.
Your startup business accountant can assess if you are ready to do business alone or have people involved in the venture as well. In the case of latter, Partnership structure is the right answer for you. It is simple to set up and it is inexpensive to operate, while there are not many restrictions or rules, it is taxed higher at personal income tax rate once your business starts to grow and prosper.
Limited Liability Company (Ltd)
In order to become a Limited Liability Company (Ltd) you need to register with the Companies House which makes this business structure slightly more complex than the previous two mentioned. In order to make this structure viable for your business, you need to figure out the shareholder ownership structure as well because in this structure each owner becomes a shareholder.
It is best to have a shareholder ownership structure in place to best compensate each owner, and it will not be easy because you will have many hours spent negotiating the ‘fairest’ way to divide up ownership. You would need your startup accountant present at these negotiations to pave a direction to keep everyone happy and do whatever is best for the business.
Limited Liability Partnership (LLP)
This structure is a hybrid of the previous structures discussed, mainly Partnership structure and Limited Liability Company (Ltd) structure, and it combines the benefits of both.
If you are forming a professional services firm then LLP is a great type of business structure to use and if your are inclined towards building a partnership, you can limit each partner’s exposure to liabilities of the business.