Partnership or Sole Trader?(9 Posts)
I'd speak to an accountant (they may advise for free initially while you decide whether to go ahead) or Business Link.
Hi, yes you can transfer later on. Hope it all goes well. Good luck!
Thank you 9thjan, I will definitely consider the options. Because we are starting from home, at current, the start up costs are fairly low & there is no borrowing involved and for these reasons, it seems low risk at present.
If we do well and expand as a business can't we change at a later date to limited?
Hi, it's always best to fully consider all your options from the outset to save costs & hassle later on. From the basic information you have given, it sounds like a limited company would be your best option. It's a very flexible option, you & your sister can own it equally & it offers limited liability (please don't underestimate the importance of this - especially as a start-up business). I provide cost effective (competitive fixed fee) legal advice for these sorts of matters. I've just recently advised a local cupcake business! Please feel free to PM for further information.
Wow! Thank you both. I think we'll go for a unlimited partnership then, not worried about liability at present.
Forgot to say, you're probably best talking to an accountant as to whether you should set up as a partership or Limited Company. There's also something called a limited liability partnership which gives you a little bit more protection (so you won't lose your house if it all goes bellyup!).
More advice here
No partnerships aren't register at Companies House. A partnership is basically two people "sole trading" together. There are Limited Partnerships which do need to register at Companies House, but their legal position is very similar to a Limited Company. The legal and tax position of a Partnership is the same as a sole trader 9on a practical level) except obviously there are two partners, who are both personally liable.
I wouldn't recommend putting everything in one of your names, even if you do trust each other completely, things go wrong. Apart from that, the person who's name it's all in will be 100% responsible for the tax on any profits (i.e. you won't get 2 personal allowances) so your would actually pay more tax as sole trader.
The only thing you need to do extra, compared to being a sole trader, is draw up a deed of partnership. This is not compulsory, but strongly recommended and if you're keeping things simple can be done on a pro-forma basis. There are probably templates available on line.
Bear in mind that you will both personally be jointly and severally liable for any debts incurred by the business, even if the other partner took them on without your knowledge, also any legal action taken against the business - make sure you have appropriate insurance. A limited company would give you more protection, but is more expensive to set up and only becomes more tax efficient if your profits make you top rate taxpayers!!
You only have to register with Companies House if you set up a Limited Company.
If you set up a partenrship, then you pay tax calculated via a Partnership tax return (as well as personal tax).
I'm not sure what the situation with HMRC would be if one of you were sole-trader and the other self employed. I don't think a self employed person is allowed to work for only one employer as they would think that you were trying to avoid paying Employers tax/NI.
I have namechanged as didn't think it professional to discuss business and personal on here under the same nickname.
Would really appreciate some advice.
My sister and I are about to set up a cupcake/catering business online.
Obviously, we are not a Sole Trader but a Partnership. However, am I correct in thinking that as a partnership we would have to register with Companies House, provide more paperwork and possibly pay more tax?
I like the simplicity of beginning as a Sole Trader.
Since we 100% trust each other, would it be legal and wise to set up as a Sole Trader in one of our names and the other as self-employed. What would the implications be of doing this? Will only do if it's 'above board' etc.
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