Smarter accounting

Guide for start-ups part 1

9 September 2014, Charities, Companies, Sole Traders

Should my start-up be a company?

You’ve got a great idea, you’ve thought of a name for your business, but you are not sure whether or not you should set up a company.  You will hear from lots of people in your industry that they have set up a limited company, but is this right for you?  There is an increasing choice of company types for start-ups.  The most common is a Private Limited Company with share capital.  Profits of a limited company are distributed to shareholders.  Start-ups often have just one director and shareholder, but remember profits of the company are distributed through dividends paid to each shareholder.  If you issue shares to someone else you are obliged to give a percentage of any dividends as long as they hold the shares.

Common company types

As mentioned above the most common company type is a private company limited by shares.  Other forms of limited liability companies are a Company Limited by Guarantee (CLG) and a Community Interest Company (CIC).  A Company Limited by Guarantee or a CIC is a popular choice for a social enterprise.  A CIC can never be a charity, but the CLG model is very common in the charity sector as it allows a charity to register with Companies House and limit the liability of directors.

Incorporate or not to incorporate?

You can operate your own business as a sole trader without any need to register with Companies House.  This can be either under your own name or a business name.  If you are using anything other than your own name, or you are incorporated you need to comply with the business names act and include details of your business on your website, invoices, emails etc.

What is limited liability?

You are liable for any contracts you enter into in your own name.  If something goes wrong as a sole trader you have unlimited liability for anyone who sues you for damages.  Any assets, even if unrelated to your business can be seized to settle any claims against you.  An incorporated organisation can enter into contracts in its own right.  The liability of owners is limited either by the value of unpaid share capital (for a company limited by shares) or the value of the guarantee (for a company limited by guarantee).  If a limited company goes bust, the assets of the company will be liquidated and distributed to the creditors (people who are owed money) but the house and other personal assets of the shareholders are safe.

Find out more at a networking event in Soho

If you would like to find out more about starting up your own business and you are in the Creative Industries, sign up for my networking event Creative Industries Networking for Business on 19th September when I will be giving a brief talk in London with guidance on setting up and running your own business.  There will be other creative entrepreneurs at the event to help you expand your network and share ideas.

For more information please contact Tim Alter through the Alterledger website.

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