When you start a business, one of the first things you’ll have to do is decide how you want to structure

it.
This can be quite daunting the first time. However, its relatively simple. There are five main types of
companies.

 Sole trader
 Limited Company
 Ordinary business partnership
 Limited partnership or Limited Liability Partnership
 Unincorporated association

The type you choose ultimately affects the legal responsibility such as the paperwork required to start
your business, the taxes you will have to pay, how you take the profit from your businesses and to what
extent will you be responsible if your business does not succeed.

Sole Traders

Sole Traders tend to be best suited to more local or specialist companies or individuals. You, as the owner,
have the full control of the business and full profit retention. Customers often tend to view sole traders
as more personal and are therefore more likely to use them in matters that are sensitive. Although there
are some great advantages of being sole traders, there are some large disadvantages. Sole traders have
unlimited liability which means that if the business goes into debt that then the business owner is fully
responsible. Business owner’s home, savings or other assets could be at risk even if they are outside of
the business. Sole traders often find it to hard to get finance which can, in some cases, cause problems
with expansion. If you start a business as a sole trader, you must register with the HMRC.

Limited Company

Limited companies are the most common in the UK and come in three forms.

 Limited by shares
 Limited by Guarantee
 Public Limited

Public Limited companies’ shares are traded in public on stock market such as the London Stock Exchange.
Limited by Guarantee companies are set up in such a way that the directors and all shareholders back to
companies for set amount. In the event that the company is not successful, they are personally liable up
to this amount. Most UK limited are limited by shares. This means that each shareholder is liable up to
the value of the shares they purchase. In this type of setup, directors are not financially responsible as
long as they have not broken the law. To register a limited company, you will need to register with
Companies House in the UK. Although there are now a number of online services can make this process a
lot easier, the directors of a company are legally responsible for the running of the company. This includes
submitting annual return to Companies House, putting together statutory accounts, sending the HMRC a
company tax returns and registering for VAT at the right point and complying with all other laws in the
UK. There are a lot of advantages to setting up your company as a limited company.

Partnership
Ordinary business partnership is set up when a number of partners start to venture together a partner
can be an individual or a limited company. Each partner shares in both the profits but also any losses the
company may make. Your partnership must be registered with the HMRC with one of the partners being
the nominated partners. All of the partners are responsible for paying the taxes owed on any profits as
well as registering the business for VAT

Limited Partnerships

Limited partnerships or limited liability partnerships are structurally very similar to ordinary partnerships.
The main difference being the amount the partners will be liable for in the event that the business
becomes insolvent. With the limited partnership only general partners are personally liable for all of the
company’s debts whereas the limited partners are only liable for the amount that they have invested into
the company. When setting up a limited partnership, you must have at least one general and one limited
partner. Limited partners do not have a say in how the business is run and not able to put all the funds
they have invested. Limited partnerships need to be registered with the Companies House. In the limited
liability partnership also known as an LLP. All the partners are only liable for the amount that they
invested. There are some more complicated tax advantages to owning an LLP in the UK.

Unincorporated association

Unincorporated Association is an organization that is formed when an individual or group of people start
trading for a reason other than profit. A good example of this is a local sports club that is owned by the
community. This is not a registered charity. The business still has to pay corporation tax and file tax
returns. The members of an unincorporated association are legally responsible for any debts the company
may incur. One advantage of an unincorporated association is that they cost nothing to set up and do not
need to be registered

Responsibilities of an employer

They way that you set up your business will have an effect on how it is run and the profit you will be able
to draw from it. Well you can change the business structure later.

A company has a legal responsibility to abide by the employment laws. Failure to abide by these laws is
punishable. A company that is found breaking employment law can find itself in court. Court cases and
fines are financially draining and prosecution can destroy a company’s reputation.

Contract of employment is a legal agreement between you and your employees and is the basis of
employment. The terms of the contract should clearly communicate the job title, salary, probation period,
hours of work, number of holidays etc.

The law is very clear that there must be no discrimination in the workplace. It specifies exactly what types
of people should be protected from discrimination. Discrimination on the grounds of age, disability,
gender and gender reassignment, sexual orientation, marital or civil status, pregnancy and motherhood,
race, religion, and belief are illegal.

Employees have a right to be protected from physical harm and you have statutory. Statutory means you
have a legal responsibility to keep your employees safe. Employers have a legal duty under the Health and
Safety Information Employees Regulations (HSIER) to display the approved poster in a prominent position
in each workplace or to provide each worker with a copy of the approved leaflet that outlines British
Health and Safety Law.

In 1974 an act of Parliament was passed called the Health and Safety at Work Act. These laws are the ones
that you should use to keep your employees safe. You must carry out risk assessments to minimizes risks
at work. There are systematic ways of evaluation possible dangers involved in an activity or in a place of
work. Risk assessments are essential in helping taking reasonable steps to prevents harm. The purpose of
the risk assessment is not to create a lot of paperwork and administration but it is to identify hazards,
decide who might be harmed and how, evaluate the risk, decide on precautions and record significant
findings.

You have a legal responsibility to make sure your employees can receive first aid if he encounters an
accident. Naturally there are legal regulations concerning this. The First Aid at Work Regulations 1981.
You have a statutory responsibility to have qualified First Aiders in your company that have fully equipped
and up to date first aid box and have an accident book.

A wide range of manual handling is covered by Manual Handling Operations Regulation 1992. You have a
legal responsibility to assess the risks associate with the type of lifting and handling carried out in your
depot.

The Data Protection Act 1988 also protects how you use the data about the people or your employees.

Removal of a Director

In public company’s memorandum and articles of association, section 128 of companies act 1965
provides: “Shareholder may be ordinary resolution remove a director from office before the expiry of his
term and appoint another in his stead”.

Under section 128, Members who want to remove a director are required to serve a special notice of
intension to the company at least 28 days before the meeting. The company shall send a copy of the notice
to the concerned auditor, who may reply and require that the said reply be given to all the members.

At the members’ meeting, the director shall be entitled to speak to the members. The resolution to
remove the director will be put to vote. It is passed if it obtains more than half of the votes casted.

If a director is appointed at the same meeting to replace the removed director, the new director shall be
treated for purpose of determining his turn to retire. If no person is appointed to replace the removed
director, the position may be filled as a casual vacancy.

The removed director may claim compensation or damages for the termination of his appointment as a
director where the company has entered into a contract with the director and the company breached it
by removing him, he may claim compensation.

Advise to Homer (Conclusion):

As a sole trader you may consider changing your business structure and form a limited company. This will
mean that the company is a separate legal entity to you, and the company keeps any profits it has made
after tax. To set up a limited company you will need to register with Companies House. You will need:

 A suitable Company Name

  An address for the company
 At least one director
 Details of the company’s shares

Check what your standard industrial classification code is, this is what identifies what your company does.
You will also need the share holders to agree to create the company and the written rules, the details of
the people with significant control over the company. Once you have all these details, you will have to
pay 12 pounds to register online with Companies House. Alternatively, you can register via post but this
costs 40 pounds and can take longer to process. When you receive a certificate of incorporation, your
company can then begin actively trading. If you don’t already have a bank account setup in the name of
your limited company then this tends to be the next step. As your limited company is a separate legal
entity, it needs a separate bank account. It also makes things much easier when having to undertake
accounting processes when your limited company has commenced trading. At the earliest opportunity
you should inform HMRC that you stopped, or intend to stop working as a sole trader working as a sole
trader. You will still have to submit a personal tax return the following year as a director and a shareholder.
You must register with HMRC to pay corporation tax within three months of doing business. This means
if your business has made purchases, sales, done by any advertising, rented a property, or employed
someone. Ensure that you do register otherwise you may face getting fined. To register you will need your
Unique Taxpayer Reference. This will have been posted on you. When you incorporated your business.
You will also need your company registration number, the date you started trading and the date our
accounts are made out to. You will receive a deadline to pay your corporation tax. It is really important
that you keep accurate records for preparing accounts and paying corporation tax. And with the looming
prospect of making tax digital, it may be worth considering the use of cloud accounting. You need to make
sure that keep all receipts, expenses, sales and purchases and you will need records of any company assets
liabilities. You will need to keep these for six years after the tax year that they relate to. If you have taxable
profits of up to 1.5 million, you corporation tax payment will be due nine months after your company
year-end, to avoid any fines. If your profits are above this threshold, you will pay the tax in installments.