What are the different types of business entities?
Sole trader: If you are a sole trader, you run your own business as an individual and are self-employed. The owner has unlimited liability to all debts and legal actions.
Partnership: This entity is similar to sole traders as they are subject to unlimited liability however they involve two or more partners sharing joint responsibility.
Limited Company: These companies offer limited liability meaning the company, rather than its owners, enters into contracts, takes debts and profits and is liable to prosecution. Ownership is divided into shares hence the term shareholder.
Limited Liability Partnership (LLP): An LLP operates in a similar way to a traditional partnership and has the benefit of limited liability. A minimum of two partners must be appointed as the ‘designated’ members and it is these partners who are responsible for the day to day running of an LLP.
What company name should I choose?
You need to ensure that your name is different from other companies already registered and also other unregistered businesses in the same line of business. Whilst most company names are easily available, some are protected. You cannot use ‘sensitive’ words that suggest a status without providing justification to Companies House, for example you cannot include the word ‘vet’ unless you have specific qualifications.
Do I need to register my company?
Sole traders do not need to register with Companies House although HMRC must be notified. You only need to register with Companies House if you are setting up a limited company or LLP.
Does a company have to issue shares?
Yes, all companies have at least one share issued to one shareholder at the time of incorporation. There must be at least one person or legal entity that owns the company.
Do I need a shareholders’ agreement?
There is no legal requirement to have a shareholder’s agreement but it is a good idea if there will be more than one shareholder in the company. Shareholders’ agreements can help prevent disputes and regulate the relationship between the shareholders, ownership of shares and management of the company. It can also be used to plan out the shareholders exit strategy dealing with things such as death, resignation or retirement of a shareholder. It is important that advice is taken when preparing a shareholders’ agreement. At Taylor Bracewell a member of our Commercial Law team can advise you and help prepare a shareholders’ agreement.
What is the difference between a shareholder and director?
Shareholders own the company by owning its shares and the directors manage it. The same person can be both a shareholder and a director which allows an individual to set up and manage a limited company on their own.
For more help and information surrounding your business - call our expert team on 01302 630 060