The United Kingdom is ranked as the fifth best countries for business in 2017. In recent decades, there have been countless open businesses in the UK, attracted by a streamlined bureaucracy and a low tax burden.
New entrepreneurs and investors should be aware that opening a business requires a specific process. The step of utmost importance is to run a market research on what could differentiate the business and provide it with a competitive advantage. Indeed, having a successful business insight is a pillar for a thriving start-up.
In the UK, there are several possibilities of financing innovative start-ups including funds from private institutions, government tax reliefs and equity crowdfunding. These financing opportunities may turn critical in contributing to any entrepreneur’s business success. To take advantage of these funds it is essential to be resident in the UK. Furthermore, it is also useful to look at start-up loans to kick-start the business.
Once the project has enough funds to undertake its activities, the shareholder/s needs to understand which is the most suitable business entity to go with. The owner/s has plenty of options to choose from. The most common legal entities in the UK are:
• LTD (Private Limited Company):
• PLC (Public Limited Company):
• LLP (Limited Liability Partnership)
• Sole Trader
The LTD is the most popular company category as it provides the shareholder/s with both flexibility and solidity. An LTD can be created with the owner being the sole shareholder and it does not have constraints/limits on the shares’ contribution (the minimum capital is one share worth £1). Moreover, the statutory accounts are less complicated in LTD companies than the PLC ones because the formers have the right to file them only once a year. Both LTD and PLC present the following features:
- The right to appoint the directors and delegate business tasks;
- The possibility to distribute dividends.
Moreover, the LTD and PLC legal entities share some additional features with the LLP, including:
- No restrictions on corporate capital;
- The opportunity to avoid VAT obligations if the business does not exceed a turnover of £ 85,000 a year.
Focusing on PLC companies, these must have a minimum capital of £50,000, with at least 25% (£12,500) of initial capital investment at the time of the formation. An organisation does not have the right to start a business unless Companies House has received and confirmed the minimum capital contribution assigned by the regulation. Moreover, some strengths of a PLC are:
- Ease in capital increase since shares are public and can be listed on the stock exchange;
- Improved accessibility in obtaining loans from banks;
- International and prestigious reputation.
The LLP, instead, refers to a partnership between a group of professionals (lawyers, doctors, etc.) and requires a minimum of two members, both with limited liability. This company type has the same fiscal and accounting obligations as an LTD. However, the LLP is less flexible than the LTD due to its more structured ownership as well as a more formal decision-making process within the corporate structure. A general example of an LLP is the one in which the profit is distributed equally among shareholders. The strengths of an LLP are:
- Shareholders' agreements between professionals cannot be registered, therefore they are not accessible to the public;
- This structure is primarily intended for companies operating in financial services, insurance and pension schemes;
- Shareholders can be part of the organisational structure (designated members). Thus, its costs can be lower than other limited companies.
If an individual starts working for him/herself, the person is automatically classed as a Sole Trader. Being a Sole Trader means that the person becomes Self-Employed even if he/she has not communicated this to HM Revenue and Customs (HMRC). As a Sole Trader, the person will be held responsible for his/her taxes and accountable for the business together with all the assets that he/she owns. The Sole Trader is the person running the business as well as keeping the company’s profits after tax and employing staff. Pros of sole trading include:
• Start-up costs are low.
• Sole trader benefits from maximum privacy.
• Establishing and operating the business is simple.
• It is easy to change the company legal structure later if circumstances change.
• The company could be easily stroked off.
In all the above cases, the entrepreneur/s must register the company with Companies House and HM Revenue & Customs (HMRC) by submitting and communicating the business details online while completing specific forms depending on the type of entity selected.
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