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Sole Traders
Becoming a sole trader is the most straight forward business set up there is! The term can be used to refer to any business that’s owned and controlled solely by one person with or without a small work force, for example; electricians, plumbers and hairdressers.
Pretty straight forward we’re sure you’ll agree? But this is where it gets a bit more interesting, sole traders are not separate from their owners finances which basically means owners are personally liable for any businesses debts accrued, and they might even have to pay them out of their own pocket.
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Limited Companies
Public Limited Companies or PLCs are businesses which have been established with at least 2 shareholders.
Limited companies, unlike ‘sole traders’ have their own legal identity so their owners are not personally liable for the firm's debts, it also means they can own assets in their own right and there are some major tax benefits available to them. The ownership is divided up into shares and control of the business goes to the majority shareholder.
There are two requirements for setting up a limited company. Firstly the Company must be registered with Companies House and secondly the company must have at least one Director who is at least 16 years of age
Individuals running or in the process of establishing a limited company are suggested to pay themselves minimum wage. By doing so, this allows them to take full advantage of the £6,475 tax threshold. Individuals are required to earn over this amount before they are eligible to pay income tax.
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