To ensure the best chance of success it is vital to structure a business in a right way, as there are different legal implications. So this essay intends to evaluate the legal factors, which need to be considered when choosing a business organization. Moreover, sole trader and private limited company will be illustrated in this essay.
In order to start up to a sole trader, which is easiest, quickest and cheapest. (PRIME, 2013). After choosing the format, number of additional legal obstacles will exist. One of the crucial steps is to obtain a suitable commercial premise, so it need for the legal advice when negotiating the lease, to ensure that there has a protection for a start-up company. To set up a sole trader, it must register with HM Revenue & Customs (HMRC) (Crown, 2013) .
Running and setting up a limited company is more administrative than setting a sole trader, also the new company must be resisted at Companies House. (Donut, 2010) By starting up a limited company, a company must provide annual accounts and returns and registered to Companies House. Applications must be made by Companies House, which if accepted, then an incorporation certificate will issued, so that the company exists. (twright, 2012)
There is unlimited liability for sole trader, so they needs to bear the risk completely as all of the liabilities incurred are the personal responsibility of the sole trader and there is no distinction between business assets and personal assets, (Limited, 2012)which mean the owner is personally responsible for any losses of the business, anything bought for the business (Crown, 2013) Therefore any debts suffered by the company can be seen as personal debts and it may lead to personal financial losses. On the other hand, the main responsibility of limited company is to do with filing paperwork to Companies House at the appropriate time. The paperwork involved the annual accounts and the annual return. Furthermore the limited company can enjoy limited liability which is that all debts incurred by a company are not directly the legal liabilities of the shareholders or of the directors, it is the company's liabilities. (club, 2011)The company is a separate legal person from the shareholders and the directors which has a separate legal identity, so there has a legal existence separate between management and the shareholders. (Riley, 2012)The company incurs debts in the course of its business and only the company is liable for those.
For the main reason that people choosing to run a limited company instead of sole trader or partnership is because of the tax benefits (twright, 2012). The business owners can make saving of tax significantly as the use of dividends and sensible payroll planning . In recent years, limited company advantages over sole trader duo to the lower corporation tax. As the cancellation of £10,000 tax free limit few years ago, the tax rates of corporation have increased 2% for small ltd companies over the last three years by comparing with the basic tax rate for sole trader which has reduced from 22 % to 20 %. Incorporation also offer the advantages of tax saving in the net profit before tax (Accounting, 2008) .For instance, in the tax calculations above illustration, Under the tax rates of UK and thresholds for 2013, for the results show that limited company have also a lower tax charge than a sole trader which provide more accountancy fees for the trading of a limited company, while the profits exceed about £15,000 (Piper, 2012), therefore it is so clear to see that limited company can enjoy a lower tax burden.
Daily management and decision making
Sole trader operate themselves with regard of the management and administration of the business. The director of limited company is responsible for the administration of company which including the limited company...