Incorporating for protection

In this uncertain financial climate, setting up your own business can be risky. So follow our tips for choosing the best form for your business.

With any new venture, it is important to minimise risk by getting the right advice at the start as to the form that your new business venture should take. Ask your solicitor, accountant or business adviser.

Consider your options, what you want to achieve and which format gives the best protection if things don't work out as planned.

Be aware of what could happen if things go wrong.  Setting up as a sole trader is quick, cheap and easy.  However, if things don’t go smoothly, the debts of the business must be met by the sole trader. Creditors may send in the bailiffs to seize assets such as electrical goods or furniture. If the losses are great, the trader may be forced into bankruptcy or lose their home. Obtaining credit later on could be difficult.

Protect your personal assets. Trading through a limited liability vehicle, such as a company or limited liability partnership, takes time and cost. But both provide the protection of limited liability. So if the business fails, the creditors have no recourse to the personal assets of the directors (unless they can be proven to have acted negligently or unlawfully) or shareholders.

Balance the costs against the protection provided. Depending on your turnover, you may find that you pay more tax than you would as a sole trader; so it is important to check that aspect out at the outset. There are also the costs of setting up the company and the ongoing costs of managing the company, as accounts will need to be prepared and various filings made at Companies House.

Consider the commercial benefits Clients and suppliers may perceive, rightly or wrongly, that the business is more stable, more reliable, even more reputable if it is in the form of a limited company.

In these unstable times, give your business a head start by finding the vehicle that gives you the best protection at the outset.


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