Which Business Vehicle?

One of the things to consider when setting up a business, is which type of business vehicle to use. Below are the main options available, together with an outline of the advantages and disadvantages of each type.

• Sole Trader
  This is an option for those who wish to run a business on their own, or with very few people assisting. There are no legal formalities in setting up as a sole trader, but a disadvantage is that the person trading will have unlimited personal liability for the debts of the business and may find it harder to raise initial finance.
• Partnership
  Partnerships are usually governed by a Partnership Agreement, which sets out each partner’s responsibilities, etc. Each partner has authority to bind the partnership as long as he is acting in the normal course of business. Partnerships have a downside in that all of the partners have unlimited personal liability for the liabilities of partnership. This liability is “joint and several” which means that the liability may be spread amongst the partners or may fall on one or a few only.
• Limited Liability Partnership
  This is a relatively new concept, where these types of partnerships (LLP’s) are also usually governed by a Partnership Agreement. However, in the absence of such an agreement, the Limited Liability Partnership Act 2000 applies certain provisions. An LLP has a separate legal identity in the same way as companies, which effectively means that it can enter into contracts and conduct business on its own behalf. Liability is therefore limited to the amount invested by each partner.
• Limited Company
  A company is a legal entity, separate from its owners and managers, and capable of making contracts and undertaking liabilities on its own account. The owners of a company enjoy the protection of limited liability, the limit being their investment in the company, i.e. the paid up value of their shares. This is often a very small amount of money and is an attraction for the use of this type of business vehicle. A limited company has a certain status compared to other business vehicles, and it is usually easier to raise finance through a company rather than as a sole trader.

There are of course other issues to consider regarding the different types of business and careful thought must be given before going ahead, to ensure that an informed decision is made which will not present problems later.