Legal Status of a Small BusinessThere are basic business formats, Sole trader, Partnership,Limited Company and Limited Liability Partnership each of which are intendedfor different types of businesses. A sole trader is a self-employed person who is the soleowner of their business. Unlike a limited company, a sole trader doesn’t haveto register with Companies House or have a director. For example, a sole tradercould be a self-employed website developer, they are working for themselveswith no other employees. This applies to many types of business, whether you’rerunning an online shop, doing freelance consultancy work, or working as aself-employed plumber. A partnership is if two or more people run a businesstogether as partners, they share profits, losses and unlimited legal liability.It is a common, and often very successful, formula, but it is important to outlinethe rights and responsibilities of partners and to set them out in apartnership deed.
This can require accountancy and legal skills.All partners include a yearly self-employment return withtheir income tax return, as well as a partnership tax return (showing howprofits were split between the partners) and pay income tax of the profits.Payment timings are the same as for sole traders. Unlike in a standard partnership, the liability of thepartners in a LLP is normally limited to the amount of their partnershipcommitments. Requirements regarding accounts, audit, returns to CompaniesHouse, winding up and insolvency all follow normal company law rules, buttaxation follows the rules for partnerships. Legal Aspects of Small BusinessThere are many things to consider when creating a smallbusiness. These things must be done properly otherwise people could be hurt oryou could see some sort of legal action against your company.
Firstly, Health and Safety. As the business owner you areresponsible for the effect your business could have on the health and safety ofyour employees as well as members of the public. This could include keepingsafety hazards out of the way, such as cables lying across the floor, whichwould not be considered safe.
It is important to make sure that the workplaceis accident free, because you are liable for any injuries to the public oremployees within your company premises.A licence is required for many businesses, not just theobvious ones like casinos or public houses. For example, you need a licence torun a hotel, a guesthouse, a mobile shop or to be a hairdresser. It’s good practice to have insurance to cover the loss ortheft of your business property, as well as other types of possible losses.
It’s also compulsory to have public liability insurance, which will often comeas part of your contents insurance policy. Tax liabilities of small businessesIf you’re a sole trader, you’ll pay income tax on yourbusiness’s profit. Assuming you don’t have any other income, such as salaryfrom a job, as well as what your business makes, then you’ll start payingincome tax on your business’s profit once it goes over the personal allowance,which is £10,600 if you’re under 75.If your business is a limited company, you could pay incometax on any salary or dividends you take from the company. Whether you payincome tax, and how much you pay, depends on how much you take out. Income taxkicks in on your salary if it’s over £10,600, you’re under 75 and you have noother income.Limited companies pay corporation tax on their profits.There’s no equivalent of the personal allowance for limited companies, so assoon as a company makes any profit, unless it’s previously made losses, it willstart paying corporation tax.Corporation tax is 20 per cent for all companies, and itspayable nine months and one day after the company’s accounting year end so, forexample, a company with a year end of March 31st will have to pay itscorporation tax by 1st January.