Legal standard partnership, the liability of the partners

Legal Status of a Small Business

There are basic business formats, Sole trader, Partnership,
Limited Company and Limited Liability Partnership each of which are intended
for different types of businesses.

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A sole trader is a self-employed person who is the sole
owner of their business. Unlike a limited company, a sole trader doesn’t have
to register with Companies House or have a director. For example, a sole trader
could be a self-employed website developer, they are working for themselves
with no other employees. This applies to many types of business, whether you’re
running an online shop, doing freelance consultancy work, or working as a
self-employed plumber.

 

A partnership is if two or more people run a business
together as partners, they share profits, losses and unlimited legal liability.
It is a common, and often very successful, formula, but it is important to outline
the rights and responsibilities of partners and to set them out in a
partnership deed. This can require accountancy and legal skills.

All partners include a yearly self-employment return with
their income tax return, as well as a partnership tax return (showing how
profits 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 the
partners in a LLP is normally limited to the amount of their partnership
commitments. Requirements regarding accounts, audit, returns to Companies
House, winding up and insolvency all follow normal company law rules, but
taxation follows the rules for partnerships.

 

Legal Aspects of Small Business

There are many things to consider when creating a small
business. These things must be done properly otherwise people could be hurt or
you could see some sort of legal action against your company.

Firstly, Health and Safety. As the business owner you are
responsible for the effect your business could have on the health and safety of
your employees as well as members of the public. This could include keeping
safety hazards out of the way, such as cables lying across the floor, which
would not be considered safe. It is important to make sure that the workplace
is accident free, because you are liable for any injuries to the public or
employees within your company premises.

A licence is required for many businesses, not just the
obvious ones like casinos or public houses. For example, you need a licence to
run a hotel, a guesthouse, a mobile shop or to be a hairdresser.

It’s good practice to have insurance to cover the loss or
theft of your business property, as well as other types of possible losses.
It’s also compulsory to have public liability insurance, which will often come
as part of your contents insurance policy.

 

Tax liabilities of small businesses

If you’re a sole trader, you’ll pay income tax on your
business’s profit. Assuming you don’t have any other income, such as salary
from a job, as well as what your business makes, then you’ll start paying
income 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 income
tax on any salary or dividends you take from the company. Whether you pay
income tax, and how much you pay, depends on how much you take out. Income tax
kicks in on your salary if it’s over £10,600, you’re under 75 and you have no
other income.

Limited companies pay corporation tax on their profits.
There’s no equivalent of the personal allowance for limited companies, so as
soon as a company makes any profit, unless it’s previously made losses, it will
start paying corporation tax.

Corporation tax is 20 per cent for all companies, and its
payable nine months and one day after the company’s accounting year end so, for
example, a company with a year end of March 31st will have to pay its
corporation tax by 1st January.

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