Business Types Research Report

Sole Trader – If you are a sole trader you run your own business as an individual and are

Self-employed.

PROS - You have full Creative Control as the sole trader of the company, you don't have to answer to anyone and you make all the decisions yourself (if you bring in people to work with you on a freelance or contractual basis, they have no say in changing the choices you make pertaining to the company, just on what they are working on), You can also keep all your business's profits after you've paid tax on them.

CONS - You do have to do everything to do with the company by yourself, including every aspect of the running, legal, and monetary issues, this means you would have less free time as well. You're also personally responsible for any losses your business makes and you may be less likely or it may be more difficult to get funding for your business.

USE IN MY ENTERPRISE - This would not be a good fit for my enterprise as being a sole trader would mean I would have to do everything myself, and my business model involves a lot of work in every sector of the business, and a lot of things that I could not do myself need to be done to just merely run the business, I would need to pay employees to do those things for me on a regular basis instead of hiring freelancers to do it as a one time job, and this brings a lot of monetary and legal problems into the mix due to the fact that we would need to adhere to HMRC guidelines, and as a sole trader business we would most likely not make as much profit as another business type would which means it would be harder to pay and adhere to regulatory regimes such as minimum wage and living wage for our employees.

Partnership – involves two or more individuals that share the risks, benefits, responsibilities,

profits, and losses of the company. Individually they are treated as being self-employed.

PROS - You have an extra set of hands to help with running the business and additional knowledge from that second pair of hands, in the end, this kind of business type typically takes less work from each person which increases productivity. Having a partnership can be less of a financial burden for all involved parties which means the business may be able to afford more things upfront and might be able to avoid large amounts of debt when starting the business, In the first place.

CONS - You cannot act independently when you’re in a partnership. You must work with your partner to make decisions, or at least run all decisions by your partner, if your partner acts alone and makes a reckless decision then all parties involved have to be responsible for the decision and the results, the reckless party cannot be held solely accountable for their actions, and whenever two people work together there is a strong risk of disagreements which risk the company as a whole. Financially and legally, all partnerships are responsible for the business, which means you'd have to split profits and would be taxed individually as a partnership is not a separate legal entity from you and the other partners.

USE IN MY ENTERPRISE - Again, this would not be a good fit for my business for pretty much the same reasons, as much as having two people running the business would be a help, it would impede on the actual work that needs to be done as both partners would need to agree and one of them may not be as well versed on the topics as the other, which may make the company run into problems if they don't agree with the other partners.

Limited Liability Partnership (LLP) – same as a partnership except the partner’s liability is

limited to the amount of money they put in.

PROS - You and the other members of the company aren’t personally liable for the actions of the company, so they can't come for personal assets such as cars, homes, bank accounts, investments, etc, as they are all protected from creditors seeking to collect from the business. This business type also benefits from the fact that it is a pass-through entity, this means that it’s profits go directly to its members without being taxed by the government on the company level, meaning that filing taxes is easier than if your business were taxed on the corporate level. Normally an LLC is member-managed by default unless explicitly stated otherwise, which allows all owners to share in the business’s day-to-day decision-making.

CONS - If you don't clearly separate business transactions from personal transactions or you show that you have run the company in a way that is fraudulent and resulting in losses in the company, you are at risk of an action by a court of law called “piercing the corporate veil,” this involves a judge ruling that your LLC structure does not protect your personal assets. If a member of your company leaves, goes bankrupt, or dies, the LLC must be dissolved and the remaining members are then responsible for all the remaining legal and financial obligations necessary to terminate the business.

USE IN MY ENTERPRISE - This would be an interesting way to run the business, I would like it for its simplicity and creativity as that is what my company stands for, but also it seems quite risky as if one person leaves the company will dissolve as a whole and leave us to pick up the pieces.

Limited Company – a privately managed business owned by its shareholders and run by its directors. The company is responsible for everything.

PROS - Your professional status and image will improve substantially when you start trading as a limited company, companies as a whole are held in much higher regard and create a better impression than say a “Sole Trader” business would, a more professional image, could benefit your company in many ways, such as attracting new clients and investors and creating a valuable and trusted brand identity. Limited companies only pay 19% Corporation Tax on company profits, whereas sole traders pay 20-45% Income Tax on their profits, this would free up surplus cash for use in reinvestment and to pay for future operational costs and growth.

CONS - You will need to register/incorporate your company, specifically at Companies House, and will be required to pay an incorporation fee to Companies House as a precursor before any business can happen. Company names will be subject to certain restrictions as well as the fact that if you make any changes to your company details, you must notify Companies House immediately which can be a hassle. Companies House require limited companies to be more strict than say, a sole trader or a partnership business, within this they require the company to adhere to strict record-keeping requirements and all company registers and records must be made available for public inspection and maintenance at your registered office.

USE IN MY ENTERPRISE - This sounds like a fantastic way to run the business, as you get the professionalism, the tax efficiency advantages, and more, but the business as a whole is a lot harder to run as there are a lot more things to think about legally, socially and monetarily.

Non-profit organization – simply put it is a business that usually intends to promote

educational or charitable purposes.

PROS - All non-profit companies benefit from something called “Tax-Exempt Status”, which means that under no circumstance does a non-profit organization need to pay tax. This tax-exempt status allows nonprofit organizations to use more of their financial resources on accomplishing their goals. As nonprofits are for the betterment of humanity, nonprofits eligible for government and private sector grants and can receive contributions from individuals, which helps founders with limited funds begin to scale their institutions.

CONS - You may experience a significant lack of funds, as a non-profit organization’s whole business model is based upon donations, You’re asking people to donate cash or other assets out of the goodness of their hearts, and unfortunately, not everyone will be too keen on that idea. It is also very true that other nonprofits are competing for the same grants, there is no guarantee of receiving the fund of your choice.

USE IN MY ENTERPRISE - No use, to be honest, but a charitable organization alongside my base company sounds like a fantastic idea, that way we can still run the business and make a profit as well as making charitable donations and helping people.

Cooperative – an organization that is jointly owned by all members with no one member

having full control. The purpose of a cooperative usually is to benefit the members of the

organization that uses its services.

PROS - The cooperative business is formed and operated to meet the needs of its members, everyone gets a say in how the cooperative is run and no one person makes all the decisions, once members start to identify their individual and collective efforts with the organization, cooperative problem solving may also start to take place. As they’re given a greater stake in their business’s outcomes, they may be more engaged and might perform better. Individual members are also taxed once on their income from the cooperative itself instead of being taxed separately on a company or individual level.

CONS - A cooperative has fewer capital incentives, which do not appeal to big investors, With decentralized power comes the fact that there is likely to be a slow decision-making process whenever a decision is made, due to the fact that everyone in the organization has to be notified and is allowed to have their say.

USE IN MY ENTERPRISE - Definitely not the best business type for my business, as my business is not for the benefit of the employees, it is for the benefit of the users who use our service as they’re our main focus.

Conclusion

A Limited Company would be the best business type for my business to adhere to, my business is a service business which means we offer our professional expertise in various matters, such as providing advice and performing specialized tasks for our customers, this means that we would be able to run the business without unnecessary inefficiencies and interference from partners who may not agree with good business practices that we are trying to put in place. In reality, starting my business as a lesser company type such as a sole tradership company or a Limited Liability Partnership (LLP) and then increasing the business type to a limited company may work better, but in all fairness on the scale that I want my business to reach and the kind of business that it is, a Limited Company would be my best option due to all the legal, the tax efficiency advantages and professionalism, and although it would be more work it would be worth it in the long run.