How to  choose a legal status for your Keepsake Business

How to choose a legal status for your Keepsake Business

Author : Michelle Williams

How do you choose business Ownership for your Baby Casting or Keepsake Business?

So, you're thinking about starting a Baby Hand Casting Business or a Keepsake Jewellery Business and you need a little guidance on choosing a legal status for your business and deciding on what is the best legal structure for your new keepsake Business?

One of the most common questions that I get asked from people who are planning on starting their own Baby Casting Business or Keepsake Jewellery Business is:

  • What is the best legal structure for my business?
  • How do you choose a business ownership?
  • How do you determine the type of business entity?
  • What are the 4 types of business ownership?
  • How do I set up and register my Business?

These are the questions that I will aim to answer for you now within this blog article.

What is the best Legal Structure for my Business?

When starting a business, it's important that you set it up properly with the most appropriate legal structure.  It’s worth thinking carefully about which structure suits the way you intend to do business, as this will affect, many things, including:

  • The Tax and National Insurance that you will be required to pay.
  • The records that you wiill be required to keep.
  • Your financial liability if your business runs into any difficulties.
  • The ways your Business can raise funds if required.
  • The way management decisions are made about your business.

If this is something you feel unsure about, I recommend that you seek some advice from an Accountant, to help determine which Business Legal Status would suit you best.  However, here is an outline of the four types of business ownership and legal structures that you could consider.

What are the 4 types of business ownership and business entity?

In the majority of cases, most of our Students and Guidl Members, who start a Baby Casting Business or Keepsake Jewellery Busines, begin operating as a Sole Trader, as this is usually quicker and easier to set up. However, there are several legal structures to consider, including:

  • Self Employed / Sole Trader
  • Partnership
  • Limited Liability Partnership (LLP)
  • Limited Liability Companies

I’ll quickly elaborate on each of these different legal structures now, to help you decide which business entity would be best for your business, but if you’re not sure which legal structure to adopt, please take advice from an Accountant, Solicitor or from the Business Support Helpline

Sole Trader

The first and quickest and easiest legal structure to set up is, as a Sole Trader. Being a sole trader is the easiest way to run a business, because:

  • You don’t have to pay any registration fees.
  • Keeping records and accounts is simple and straightforward.
  • There is no corporation tax to pay, so you get to keep all your hard earned profits.
  • You are personally liable for any debts that your business runs up

To set up as a sole trader you will need to…

  • Register as self-employed
  • Be personally responsible for all the decisions about how to manage your business.
  • Raise funds for your business start-up out of your own personal assets or through securing a bank loan.
  • Submit an annual sef-assessment tax return to HMRC.
  • Keep book keeping records showing your business income and expenses.
  • Any profits from your business will go directlyto you, but as a self-employed sole-trader, your profits will be taxed as income.
  • You will also need to pay fixed-rate Class 2 and 4 National Insurance contributions on your profits.


Partnership

In a partnership…

  • Two or more people share the risks, costs and responsibilities associated with being in business.
  • Each partner will be self-employed and take a share of the profits.
  • Usually, each partner shares in the decision-making and is personally responsible for any debts that the business incurs.
  • If one of the partners resigns, dies or goes bankrupt, the partnership must be dissolved, although the business can still continue.
  • A partnership is a relatively simple and flexible way for two or more people to own and run a business together. 

To set up a partnership….

  • Each partner must register as self-employed.
  • Ideally a written Partnership Agreement should be drawn up, which dictates the way that the business will be run and the relationship between each partner etc.
  • Partners themselves usually manage the business, though they can delegate responsibilities to employees.
  • Partners raise money for the business out of their own assets or through business loans.
  • It’s possible to have ‘”sleeping partners” who contribute money to the business but are not involved in running it.
  • The Partnership itself and each individual partner must make annual self-assessment returns to HMRC.
  • The Partnership must keep records showing business income and expenses.
  • Each Partner takes a share of the profits.
  • Each partner needs to pay National Insurance Contributions.
  • Creditors can claim a partner’s personal assets to pay off any debts, even those debts caused by other partners.
  • In England, Wales and Northern Ireland, Partners are jointly liable for debts owned by the partnership and so are equally responsible for paying off the whole debt.
  • If a partner leaves the partnership, the remaining partners may be liable for the entire debt of the partnership.
  • Also, a creditor may choose to pursue any of the partners for the full debt owed in the case of insolvency.

Limited Liability Partnerhship

A limited Liability partnership, is similar to an ordinary partnership, in that a number of individuals or limited companies share in the risk, costs, responsibilities and profits of the business. The difference is that liability is limited to the amount of money that they have invested in the business and to any personal guarantees they have given to raise the finance. This means that members have some protection if the business runs into trouble.


To set up a Limited Liability Partnership  (LLP), each member must...

  • Register as self-employed.
  • There is no restriction on the number of members, but at least two must be designated members. The law places extra responsibilities on designated members. You can find out more at Companies House.
  • If the LLP reduces in number and there are fewer than two designated members, every member is then deemed to be a designated member.
  • LLP’s must register at Companies House.
  • It’s a good idea to draw up a written agreement between the members. You can get help and advice on this either from an Accountant, Solicitor, or The Business Support Helpline.
  • Usually members manage the day to day running of the business, but they can delegate responsibilities to employees.
  • Members raise money out of their own assets or through loans or investment.
  • The LLP itself and each individual member must make an annual self-assessment return to HMRC.
  • All LLP’s must file annual accounts with Companies House. 
  • Each member takes an equal share of the profits, unless the member’s agreement specifies otherwise.
  • Members of an LLP pay tax and National Insurance contributions (NICs) on their share of the profits.
  • The profits of a member of an LLP are taxable as profits of a trade, profession or vocation and members remain self-employed and subject to National Insurance Contributions.

Limited Liability Company

Limited Companies exist in their own right. This means the company’s finances are separate from the personal finances of their owners. Shareholders may be individuals or other companies. They are not responsible for the company’s debts unless they have given guarantees (of a bank loan, for example). However, they may lose the money they have invested in the Company if it fails.

Main types of Limited Liability Companies:

  • Private Limited Companies – can have one or more members, e.g shareholders. They cannot offer shares to the public.
  • Public Limited Companies (PLC’s) – must have at least two shareholders and must have issued shares to the public to a value of at least £50,000 before it can trade.

To set up as a limited company, you will need to...

  • Register (incorporate) your company at Companies House.
  • Have at least one director (two if it is a Public Limited Company) who may also be shareholders.
  • Directors must be at least 16 years of age.
  • Private companies are not obliged to appoint a company secretary but if one is appointed, Companies House must be informed.
  • Public Limited Companies must have a qualified company secretary.
  • A director or board of directors make the management decisions.
  • Finance comes from shareholders, loans or retained profits.
  • Public Limited Companies can raise money by selling shares on the stock-market, but private limited companies cannot.
  • Accounts must be filed with Companies House in advance of the deadlines in order to avoid a late filing penalies.
  • Accounts must be audited each year unless the company is exempt.
  • When you file your Annual Return for the first time, a letter will be issued to the Registered Office containing the company’s authentication code and instructions for use of Companies House web filing services.
  • Directors are responsible for notifying Companies House of changes in the structure and management of the Business.
  • Profits are usually distributed to shareholders in the form of dividends, apart from profits retained in the business as working capital.
  • If a company has any taxable income or profits, it must inform HMRC and it will be liable for corporation tax.
  • Companies liable to corporation tax must make an annual return to HMRC.
  • Company Directors are employees of the company and must pay both income tax and  National Insurance contributions on their salaries.
  • Shareholders are not personally responsible for the company’s debts, but directors may be asked to give personal guarantees on loans to the company.


If you are new to starting a Baby Life Casting Business or Keepake Jewellery Business and you need a little extra help in starting, launching and growing your Business, I have over 20 years Business and Marketing experience in the Life Casting and Keepsake Business Sector, which I'd love to share with you.

Apart from offering a market leading series of Life Casting Courses and Keepsake Jewellery Courses, I also offer a growing collection of Business and Marketing e-courses, designed to help you Start, Launch and Grow your Keepsake Business. I also offer a range of "Done for you' Marketing Services", to help with building your Brand Identity and Website.

I hope that this information is of value to you, but if you have any further questions, please message me and I'll be happy to help!

If you are right at the begining of your journey of considering starting a Baby Life Casting Business or Keepsake Jewellery Business, check out the additional links and resources below and register for my FREE Mini Course on "How to Start your own Creative Home Business."

 

Links

http://go.thecraftecademy.co.uk/creative-home-business

http://go.thecraftecademy.co.uk/timeandfreedom