Merely going to an accountant to set up a business structure without prior knowledge can land someone in an amount of trouble and sometimes even loss of money.Let’s explore the three main types or structures briefly:
A Sole Trader is a business structure that provides no separate legal entity from the person and such an individual is personally liable for any debts and losses the business may incur.
A Partnership is a business structure that occurs when two or more people get together to run a business. It is not necessary that all the partners are actively involved in running the business. But like Sole traders, partners have unlimited liability. Partners are liable in law for each other’s actions.
A Limited Company is a separate legal entity (but owners may be required to give personal guarantees). Owners do not have to work for the company. You are not self-employed in the company, but employed. If operating as an owner-managed business you will be both a director and shareholder who have a limited liability. As we can see all three structures are varied as are their tax implications and complexities. So what should we really consider before choosing a structure?
- Level of Expertise – For someone who is just starting in business and really has no experience of Bookkeeping, having a Limited Company will quickly land you in big trouble with fines and unnecessary hassle from Companies House. However for someone who is very clued up or quick to learn, starting with a Limited Company could be most ideal especially where the annual turnover may be in excess of £100k there would be better tax savings than being a Sole Trader.
- Level of Investment – It is still common that investors regard Limited Companies as more of a serious entity than Sole Trader. Besides it is impossible for anyone who wants to invest in a Sole Trader to have shares within such a business, all of which are possible with a LTD. Hence, if your goal is to raise finance at inception you really need to become an LTD instead of any other business structure.
- Risk Factor – In business if the risk factor is high and large you must be LTD. However, if the risk is low/small one could opt to be a Sole Trader then change to an LTD as the business grows and changes. A rule could be that if your likely turnover would be over £30k then you should consider being LTD because the level of risk is likely to increase proportionately (watch out: for the music businesses it is important to avoid giving personal guarantees even as a LTD because some institutions will try to make you personally liable even though you have a LTD).
Boomy Tokan a Music Business Expert says there are many ways to make money with your music and build a lasting career in the music business but you need to have the business “Know How”. Visit http://www.musicbusinesstools.com for a Gift!
Article Source: http://EzineArticles.com/6231234