Partnerships and Sole Traders

Finding the right way forward

Horsey Lightly can help you understand and adopt one of several different structures for your business:

• Sole Trader
  
• Limited Company
  
• Partnership
  
• Limited Liability Partnership
  

Each carries different tax treatments and different levels of formality. Each will expose you as an individual to different risks and require different levels of information to be put in the public domain.

Sole Traders

This is the simplest business structure available. An individual (the owner) starts trading and thereby operates as a sole proprietorship. The owner provides all the capital and undertakes all the risks. There are very few legal requirements for this type of business. There is also virtually no requirement to make any information publicly available. The owner retains all profits and is personally liable for all debts incurred and their personal assets are at risk.

Advantages

• There are few formalities to setting up and operating as a sole trader, which helps to keep costs down and profits up
  
• The sole proprietor can make immediate decisions without the need to consult with other parties
  
• The business belongs to one individual who can take all profits
  
• The management of the business is unregulated but the nature of the business itself may fall under some kind of regulation
  

Disadvantages

• Should the business fail, the proprietor would cease to have an income and all debts would have to be met by the proprietor's personal assets
  
• As a small business, sources of finance may be more difficult to obtain therefore expansion can be difficult
  
• The liability of the sole trader is unlimited
  

Partnerships

A partnership is defined as a relationship between persons carrying on business in common with a view to profit. Proving the existence of a partnership may be difficult as a "partnership agreement" could be verbal. Conversely, a partnership may exist without the knowledge of the parties merely by the fact that they are carrying on business in common with a view to profit. The legal requirements involved may include:

• Business name and partners names must be displayed on the main premises in a public place that is accessible to customers and suppliers
  
• All invoices, letterheads, orders and receipts must contain business names and partners' names
  

Advantages

• There are few formalities to setting up and trading as a partnership
  
• The financial resources of more than one person are likely to be better than in a sole proprietorship
  
• Responsibility can be shared, allowing flexibility and time off
  
• No information about the business is held on public record
  

Disadvantages

• Partnerships have unlimited liability, with the exception of Limited Liability Partnerships
  
• Each partner is responsible for the negligence of the other partners
  

Making an informed decision

Our business services team in Berkshire will help you understand the various benefits and limitations of each structure. Together, we will find the right structure for your business based upon the following:

Your exposure to risk

To some extent, this will depend on the nature of your business. In the vast majority of cases, if you incorporate your personal assets are removed from the pot and not available to creditors if your business fails or a claim arises.

Your borrowing requirements

It may be easier to borrow money as an individual rather than a newly formed company, although banks will typically seek personal guarantees from directors to secure any lending.

Your requirement for privacy of financial information

Every business is required to maintain accounting records for tax purposes. Only limited companies and limited liability partnerships are required to publish annual accounts. However, information on public record is always at least 9 months old and in the case of most small and medium businesses it is abbreviated.

Our company team work closely with our employment lawyers and commercial property solicitors and the litigation team as your case requires.