Establishing a Small Business

Our services include a full range of legal advice and assistance for those committed to starting up their own business. Without such advice establishing a small business can be time consuming and may present a variety of problems. Carter Hodge are able to provide assistance with :-

• The business medium - sole trader, limited company, partnership or limited liability partnership?
• Premises - buying or letting?
• Employment issues.
• Running the business - terms and conditions of business, distribution and agency agreements and the like.
• Dispute resolution - bringing and defending claims and recovery of debts.
• Statutory registrations - VAT, PAYE, Data Protection, Consumer Credit.

Business Medium - Sole Trader, Limited Company Company, Partnership or Limited Liability Partenrship

Sole Trader
A sole trader is an individual trading in business on his or her own account. No legal formalities are required to commence trading. The accounts of a sole trader need neither be audited nor publicly disclosed. A sole trader is fully liable for all debts and liabilities of the business and therefore puts personal assets at risk if the business becomes insolvent.

Limited Company
A private limited company provides the owners of the business with limited liability so that in the event of the company becoming insolvent the owners may not be responsible for the debts of the company although, in certain circumstances, a court can order directors to pay some or all of the debts. Further, the major creditors of a small business are usually its Bankers and Landlord both of whom are likely to have insisted on personal guarantees from the directors thereby making them personally responsible for those specific debts.

A company must have at least one director and a company secretary. If the company has only one director that person cannot also be the company secretary. The role of director carries with it certain duties and responsibilities. The company must have a "registered office" in England and Wales to which notices affecting the company can be sent although the address need not be that from which the company trades. A company may trade under any name but a private company's name must end with the word "limited" and the name cannot be the same as that of an existing company.

A company limited by shares must have a share capital which can be as small as required. The company must have a minimum of one shareholder. The company must state on its business letters and other stationery either the full names of its directors or none of their names. The company's registration number, its corporate name and its registered office address must be shown.

An Annual General Meeting (AGM) must be held in each calendar year to approve the accounts for the previous year, to approve any dividend awarded and to appoint auditors for the following year. Limited circumstances exist for shareholders of a private company to postpone the holding of an AGM.

All documents filed with the Registrar of Companies are open to public inspection. Most companies must have UK Accountancy Auditors although there is an exception for small companies with low turnover.

Directors will be employees of the Company and their salary will be subject to deduction of PAYE and national insurance.

Partnerships
Rights and responsibilities of the partners are governed by the agreement which exists between them and/or the Partnership Act 1890. A written partnership agreement is recommended to include issues such as arrangements for sharing of profits, how decisions are to be made for the running of the partnership business and what happens when one of the partners dies or retires from the business for any reason. Partners are personally liable for debts of the firm and the liability of each partner is unlimited so that creditors can recover their entire debt from one partner. Every partner is an agent of the others and may, on behalf of the partnership, enter contracts, incur debts and dispose of partnership property in the ordinary course of the partnership business.

Save for partnerships of more than twenty individuals all business letters and certain other documents must show the names of all the partners in the firm and provide a business address for service.

Accounts can be prepared in a simple form with no specific accounting, auditing or disclosure requirements.

Limited Liability Partnership (LLP)
An LLP can be incorporated by "two or more persons associated with carrying on a lawful business with a view to profit". It is, like a limited company, but unlike a partnership, a separate legal entity and may enter into contracts and hold property in its own right. Assets, profits and liabilities all belong to the LLP. The members of an LLP are treated, for tax purposes, like a partnership. Members are taxed individually and the assets of the LLP are treated as owned by the members. The name of the LLP cannot be registered if a similar name already exists on the company's index or the LLP names index. The name of the LLP must end with the words LLP and must appear on any business stationery along with the registered office, registered number and place of registration.

There must be at least two members of an LLP at all times failing which the limited liability is lost. There is no upper limit on the number of members. The relationship between members is governed by express agreement, or by the provisions of the Partnership Act (and members act as agents of the LLP). Members of an LLP have no contractual liability to the creditors of the business and are protected beyond their capital commitment save in certain circumstances similar to those as with a limited company.

An annual return must be filed with audited accounts.