Track 42

Track 42.

In last week’s lecture I talked about employment and aspects related to it, including contracts, income tax and so on.

However, people are increasingly looking at other forms of earning a living by working for themselves and being in greater control of their working lives.

Today Dr Korpis and I are going to talk about three different ways in which people can work for themselves.

They can set up a company, set up a partnership, or they can work as a sole trader.

There are important legal and financial matters to take into consideration when choosing one of these structures as a way of doing business in the UK.

First, I just want to outline the main differences between these three types of business structure, which are to do with tax and registration.

Regarding registration, those wanting to set up a limited liability company have to legally register the company with Companies House, the government department responsible for businesses.

Limited liability means that, if the business fails and the owners owe a lot of money, they only lose the money and goods which are in the business, and not their own personal money and goods.

This is because the owners of the company are separate from the company itself.

On the other hand, a sole trader doesn’t need to set up a company; he or she can simply start working without any legal registration.

A partnership can be limited or unlimited.

An unlimited partnership is just like a sole trader, but with two or more partners.

In this situation, each partner shares expenses and also income.

A limited liability partnership, or LLP for short, is like a limited company, because it must be legally registered in the same way.

So just to summarize: with limited liability companies and limited liability partnerships, the owners and the company are separate in legal terms, but with simple partnerships and sole traders, the business and the owner are not legally separate.

The other main difference is to do with money, both with finding money to start your business, and with paying tax.

For example, it might be difficult to borrow money from the bank if you’re a sole trader, but easier if you have a limited company, as banks trust companies more.

Regarding tax, limited companies pay corporation tax, which, unlike income tax, is a tax on business profits, not personal earnings.

This is more favorable for companies, as corporation tax is usually less than income tax.

On the other hand, with sole traders and partnerships, whether simple partnerships or limited liability partnerships, the owners must pay income tax, which may be higher than corporation tax.