Choose The Right Legal Structure For Your Franchise.

Make it legal.

   To put your business on a proper footing with the Inland Revenue and other authorities, you need to make sure that it has the right legal structure. It's worth thinking carefully about which structure best suits the way that you do business, as this will affect:

• the tax and National Insurance that you pay.
• the records and accounts that you have to keep.
• your financial liability if the business runs into trouble.
• the ways your business can raise money.
• the way management decisions about the business are made.

  There are several structures to choose from, depending on your situation. This guide will help you understand the differences between them.

Sole trader

  Being a sole trader is the simplest way to run a one-person business, and does not involve paying any registration fees. Keeping records and accounts is straightforward, and you get to keep all the profits. But you are personally liable for any debts that your business runs up, which can make this a risky option for businesses that need a lot of investment.

Set Up

• You need to register with the Inland Revenue as self-employed.
• You have to make an annual self-assessment return to the Inland Revenue.
• You must also keep records showing your business income and expenses.

Tax And National Insurance

• As you are self-employed, your profits are taxed as income. You need to pay fixed-rate Class 2 National Insurance contributions (NICs) and Class 4 NICs on your profits.

  In a partnership, two or more people share the risks, costs, and responsibilities of being in business. Each partner is self-employed and takes a share of the profits. Usually, each partner shares in the decision-making and is personally responsible for any debts that the business runs up.

• As partners are self-employed, they are taxed on their share of the profits. Each partner needs to pay fixed-rate Class 2 National Insurance contributions (NICs) and Class 4 NICs on their share of the profits.

  Limited companies exist in their own right, distinct from the shareholders who own them. This means their finances are clearly separated from the personal finances of their owners.

• File accounts with Companies House.