Legal 101 guide for start-ups

Legal 101 for small business

Entrepreneur | Legal | Startup

By Matthew Hourn

No matter what the reason for starting your business, whether it’s a desire to earn more money, have more freedom or because you can’t stand your boss wearing tights around the office, you must research the industry, assess your competitors and gather as much information as possible.

Legal 101 for small businessChoosing the right business structure

Before starting your business, you need to consider the most suitable structure for you:

  • Sole trader

This is exactly what the name suggests. All the assets and the liabilities of the business belong to you. This means that there is no separate legal existence between you as the owner, and the business.

  • Partnership

This involves two or more people starting a business. It can be an association of individuals or entities for the purpose of carrying on business with the view to making a profit. Legally, all partners share profits, risks and losses according the partnership contract.

  • Company

A proprietary limited company is the most common type of company used by small business. A company is a separate legal entity from you and the company is capable of having its own assets and liabilities.

  • Trusts

A trust is a business structure whereby the trustee holds property and earns and distributes the income on behalf of the beneficiaries.

In choosing the structure that best suits you, you should obtain both legal and professional accountancy advice. There are a number of important factors that you need to consider. For instance generally, sole traders attract the greatest personal risk, as they are potentially personally liable. However, a company is a separate legal entity and the owner is not usually at risk, only the directors, who have very limited liability.

Also, tax rates vary depending on the type of structure you choose. Although company structures are more expensive to set up and run than as a sole trader, there are various tax benefits with company structures.