Partnership or sole trader – what to choose?

Mihai-Alexandru Cristea 20/09/2022 | 20:45

Great Britain is one of the most beautiful countries, with a rich history and centuries-old cultural heritage. In this country, it is quite possible to register an enterprise, conduct business, as well as manage financial statements via the Internet. Business in the UK, if properly organized, can and should bring good results. If you want to register as a sole trader or set up a business partnership, this article is for you.

 

Requirements for starting a business

In Great Britain, according to the law, Englishmen and foreigners are equal in their rights and obligations. Absolutely any citizen from any country in the world can open a business in the UK in the shortest possible time. However, in order to engage in entrepreneurial activity, you need to meet certain criteria:

  • age from 16 years;
  • solvency;
  • business plan;
  • no criminal record.

What legislation it is desirable to study before you start your business in the UK:

  • limited Partnerships Act 1907;
  • The Small Business Enterprise and Employment Act 2021;
  • Companies Act 2006;
  • Limited Liability Partnerships Act 2000;

In Northern Ireland and Scotland, when organizing an enterprise, study local legislation more carefully, as it has some features for organizing a business. And what is important is that you must decide on the legal form of the enterprise that you are going to create.

The difference between a partnership or sole trader 

There are several forms of business ownership in the UK. Each has its own advantages and disadvantages. To understand which form suits you, it is worth considering the features of the forms.

Partnership

A partnership is the opening of a business by two or more people for the purpose of making a profit. The main advantage of a partnership is that formally there is no need to take any action to start your business. If at least two people decide to start their own business together, then automatically this is the beginning of a partnership. Often partners do not realize that they are legally bound from the moment the contract is concluded. This can lead to disagreements between partners, customers, and suppliers.

Problems can often arise if the business is booming and everyone wants to get as much benefit as possible for themselves. The fact is that the law automatically obliges any partnership to follow certain conditions unless otherwise agreed between the partners in advance.

The main provisions of the partnership:

  1. Partners have equal powers, so any issue requires a unanimous decision;
  2. Partners have joint and separate liability, that is, they are personally responsible not only for their own actions within the partnership (separate responsibility) but also for the actions of their partners (joint responsibility). Therefore, if, for example, one of the partners is sued for breach of contract, a claim can be brought not only against him but also against other partners, even if they are not directly or indirectly related to the issue of breach of contract. The risks increase significantly with the increase in the number of partners;
  3. Partners equally distribute both profits and losses. Problems can arise if partners invest unequal amounts of money or if one invests more time and effort than the other;
  4. All partners are legally bound. For example, if one of the partners enters into a bad deal on behalf of the partnership, perhaps even without the other members’ notice and approval, the others will be forced to comply with the terms of that deal.

Why enter into a partnership agreement: pros and cons

Usually, people just want to work together. If this cannot be done within the company, then they enter into a partnership by default. In such a case, it may be because there is a desire not to publicize tax matters (unlike in a limited liability company, all income received in the partnership is treated as the partner’s personal income).

Partnerships are beneficial for short-term business arrangements as they are very easy to set up and technically end when one of the partners decides to leave or someone new joins the business. The partnership continues to exist even after leaving or joining, but technically it will be a new alliance.

Another advantage of partnerships is their confidentiality, as there is no need to provide any information to Companies House.

In general, partnerships are losing their popularity, even though partners can agree among themselves to change most of the above conditions.

The main problem of the partnership lies in the personal nature of the joint and separate responsibilities of partners. For example, if a partnership must pay a large fine or lose a major lawsuit, each partner’s real estate, and any personal savings are at risk. No adjustment to the original conditions can cancel this provision. As a result, limited liability partnerships were introduced. They are the middle link between a limited liability company and a partnership.

Sole trader: pros and cons

This is an individual engaged in entrepreneurial activities without forming a legal entity. The owner personally bears full financial responsibility for all the property that he owns. This form of business ownership is easy to register. When operating such an enterprise, minimal reporting is required, you only need to record income and expenses. You don’t need to immediately register for VAT. If for a month of work the enterprise’s revenue is less than £82,000, then it is not necessary to open a bank account for the enterprise, and money can be transferred to your personal account.

The scheme of doing business by a sole trader, in fact, resembles a partnership business, except that only one person is involved in the process. The entrepreneur assumes all responsibility: risks, profits, losses, ownership of assets, etc. The benefits of a sole trader are similar to those of a partnership, for example, no requirement to register a business, except for notifying the tax authorities. This way of doing business is quite popular.

Summary

The opportunity to start a business in the UK is available to everyone. With the right approach to the implementation of ideas, the costs of the business will fully pay off and you will begin to receive dividends. If you cannot decide which form of business to choose, consult with the professionals of Hoxton Mix. The company provides customers with assistance in choosing the correct form of business ownership, registering a business, renting a virtual office, managing correspondence, etc.

 

Photo: dreamstime.com

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