We have produced 3 brief videos to give a quick overview of our services. Covering our Starting in Business Course, our services for new businesses and how we can help with businesses looking to scale-up.

Cost of living crisis – business support Pt. 1

Last week Annie sat down with one of our business advisors, Liz Gjoni to talk about the cost-of-living crisis & what support is available to SMEs who are concerned about the impact it will have on their business. Part 1 below…

Partnership Agreements

It is a truism that every divorce starts with a wedding – but equally every business dispute starts with a partnership of some sort.

As with a wedding, when starting a business it is easy to assume that you will always be able to agree with your colleagues; unfortunately the reality is often different.

Partners can run the business in almost any way they wish but it is important to have a written agreement to fall back on if necessary to provide a route map out of a dispute. The alternative can become drawn out and expensive. If you do not, the provisions of the Partnership Act 1890 will automatically apply and they may not give the outcome you would choose.

Partnership Agreements can deal with a wide range of matters:

• Duration – whether the partnership will exist for a fixed term, for a particular purpose or for an indefinite period until a partner gives a specific notice
• Capital – how much cash or asset each partner will initially contribute to the partnership and the mechanism for further contributions.
• Partnership property – Unless otherwise agreed, all property used by the partnership for the purpose of the business will be partnership property. If property will be used by the partnership but will not be partnership property, the Partnership Agreement can be used to identify it and state the terms on which the partnership can use it.
• Profits and losses – Unless the partners agree otherwise, all partners are entitled to share the profits of the business equally, and must contribute equally towards any losses. Partnership Agreements can specify an alternative division.
• Drawings – how much and when drawings may be taken.
• Incoming partner – the partners can agree that the addition of a new partner must be agreed by the majority of the existing partners or unanimously.
• Retirement, death and expulsion – the period of notice to be given by a partner wishing to leave, and the circumstances in which the other partners can force one to leave. It can also specify the procedure for valuing the share of the outgoing or deceased partner and arrangements for payment.
• Restrictions – Partnership Agreements can impose restrictions such as preventing partners from entering into contracts on behalf of the partnership above a certain value, or hiring and firing without the authority of the other partners.
• Dissolution and winding up – Unless the partners agree otherwise a partnership will be dissolved when anyone leaves, dies or gives notice. Often just one partner wants to leave and the others wish to carry on. The Partnership Agreement can clarify this. Alternatively, it can specify a manner of dissolution other than under the strict terms of the Act eg whichever partner prepared to pay most being able to buy the other out.
• Dispute resolution – a method for dealing with the situation, short of dissolution of the partnership, if the partners cannot agree on a particular matter eg a specific mediation, or decision by an specified 3^rd party.

If you’re interested in starting up a new business in the North Somerset Council area, please contact us to see how the hive can help.

Starting up your Business – Part Two

Setting up a business can be stressful. You may know everything about your business, but whether to trade as a sole trader, a company or a partnership, taking on premises or becoming an employer it can seem daunting. Hopefully these articles will make it less so!

In this article – part two – we’ll tackle limited liability businesses. In part one we covered sole traders and partnerships.

Limited Liability Partnership

An LLP is a relatively new structure when it comes to business formation. It combines the flexibility of a partnership with some of the protection offered by a company. It is more formal to set up than a normal partnership and requires registration at Companies House. It must also have at least two partners. This allows it to have a separate legal status from the partners and means it can enter into contracts and own property in its own right.  Partners are referred to as ‘members’ of the LLP, they do not hold shares and have no obligation to contribute to the capital of the LLP.

Unfortunately, with the limitation of liability comes increased regulation. You are required to file an annual return and annual accounts with Companies House and notify them of every change in the LLP’s membership, as well as any legal charges granted over its assets.  For a small fee this information is available to the public, a reason why some business owners prefer to retain the anonymity of a normal partnership.

The profits of an LLP are taxed as a partnership so each partner must submit an income tax return to HMRC to account for their share of the profits. The partners are able to agree how the profits will be divided, how decisions will be made, how and when new members are appointed and the circumstances in which a partner will retire. This can be set out in a private partnership agreement in the same way as a normal partnership. Many LLPs are professional businesses or semi-charitable businesses.

Limited Company (Register at Companies House)

A Company provides the highest level of protection to shareholders, investors and directors. It is registered with Companies House and must comply with the same filing requirements as apply to LLPs. Depending on the size of the company, full or abbreviated accounts will have to be filed at Companies House annually and are then publicly available. This same transparency applies to the details of the directors and shareholders of the company.  In return for this, the liability of shareholders is limited to the face value of the shares they own. A company can be formed by a single individual. There are due to be recent changes to the Companies Act 2006. Small companies will be required to file both their profit and loss account and directors’ report and will no longer be able to prepare and file abridged accounts. Micro-entities will also be required to file their profit and loss account but will continue to have the option not to prepare or file a directors’ report.

When setting up a limited company you may wish to appoint an accountant to do this as they will be also able to register you for RTI Real Time Information with HMRC. A requirement to report your monthly payroll to HMRC.

During the registration process you may also wish to consider your registered address which will be open to the public. It may be better to avoid using using residential home address and ask if your registered address could be at your accountant office. This is ideal as it enables all HMRC/Companies House letters will be sent directly to their address.

If they wish, this allows shareholders to simply act as investors and appoint directors to run the day-to-day affairs of the business and take the risk of personal liability.  Many choose to act as directors of the company and take on the responsibility of running it. Unless they act outside their powers, are negligent or fraudulent then they will not have any personal liability for the company’s actions. A director can take a salary from the company and if they are also a shareholder, they may entitled to a proportion of any dividends issued subject to the trading entity, and this will be a professional conversation with the accountant based on the level of dividends that can be taken, to ensure there is a sufficient level of working capital remaining in the business for the business to continue to operate profitably.

If the business is likely to generate significant income, then a company may be the best vehicle to minimise tax liability. Corporation tax. The rate at which corporation tax is charged is scheduled to increase from 1 April 2023. The rate will increase to 25% for companies whose taxable profits exceed £250,000. For companies with profits of less than £50,000, the current 19% rate will still apply. (This may be subject to change) significantly lower than the personal income tax rate on that amount! The optional issue of dividends means that some profit can be left in the company and distributed to the shareholders over a longer period of time. The expense of setting up and running a company means that it is not always the best vehicle for a start-up business. There is, however, no reason that a business cannot change its structure as it grows, moving from a sole trader to a partnership to a company, and normally done at the year end.

If you’re interested in starting up a new business in the North Somerset Council area, please contact us to see how the hive can help.

Starting up your Business – Part One

Setting up a business can be stressful. You may know everything about your business, but whether to trade as a sole trader, a company or a partnership, taking on premises or becoming an employer it can seem daunting. Hopefully these articles will make it less so!

In this article – part one – we’ll tackle sole trader and partnerships. In part two we’ll cover limited liability businesses.

So, what will your business structure be?

Sole trader – Register with HM Revenue & Customs (receive a 10 digit UTR No)

The simplest form of business structure, suitable whether you will be working alone or employing people. The key element is that you are the only owner of the business. Accounts are only needed for calculating your personal tax and for VAT or your own record keeping. They are not publicly available. All VAT-registered businesses are required to follow the Making Tax Digital rules by keeping digital records and using software to submit their VAT returns.  The threshold for VAT is an £85,000 turnover. Self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for Making Tax Digital for Income Tax from 6 April 2024. You must use an approved Making Tax Digital Bookkeeping package to be compliant with 6 X filings a year.

The main disadvantage is that you are the business and therefore liable for all its debts.  If the business incurs debts which it cannot pay, the creditors can claim from you personally. This can also include liability under contracts or leases that you enter into as part of the business. Sole traders can often find it challenging to obtain funding from banks and may need to use other resources e.g., family or savings to get their business up and running.  Any profit is treated as your personal income and taxed at the usual basic and higher rates. In effect you pay tax on the ‘paper profit’ whether or not you can physically withdraw it from the business. It is often the chosen vehicle for smaller or start-up businesses. This is an ideal trading entity if your net profit is reletativly low and can be advantageous from a tax point of view.

Partnership

A partnership is similar to a sole trader in many ways, but all the partners are liable for debts. This arrangement is useful when two or more people want to go into business together but do not want the formality of running a company.  Whether a partnership exists is a question of fact, it does not require any formal paperwork to create it and so you may already be in one and not know it! The test is two or more people trading together with a view to making a profit.

As with a sole trader, all the profits are treated as income and each individual pays income tax on his share of the profits. In a partnership these profits can either be divided equally between the partners or in any other way.  Although no paperwork is required to form a partnership, it is advisable to have a written partnership agreement to regulate the relationship e.g., to agree the division of profits and losses and the process for people leaving or joining the partnership. If there is no written agreement the partnership is governed by the Partnership Act 1890, is terminable at will by any partner and has no implied restrictions on an ex-partner. As a partnership is not a separate legal entity, property is usually held by one or more of the partners on trust for all of them. Should the partnership fail, any creditors can pursue the individual partners. Each one is ‘jointly and severally liable’ i.e., a creditor can choose who to pursue and can seek to recover 100% of the debt from any partner.

If you’re interested in starting up a new business in the North Somerset Council area, please contact us to see how the hive can help.