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Partnership or Sole Trader?

By: Sam Harrington-Lowe - Updated: 18 Jun 2010 | comments*Discuss
Sole Trader Partnership Business Partner

Choosing the right relationship and structure for your business is vital. We have looked at limited companies and how to set them up in another section of this site, but setting up as a limited company is not necessarily the only or right course of action. As well as this option, the other two most popular forms of business structure is either a partnership or setting up as a sole trader.

What is a Limited Company?

A limited company means that the assets and liabilities of the business are separate from the personal affairs of those involved. Directors and shareholders will, in the eventuality of disaster, only be liable to their creditors for the equivalent of the initial investment in the case of a company limited by shares, or if it’s a company limited by guarantee, to the maximum of a pre-agreed sum at the point of incorporation. It’s clearly an advantage if things go wrong, although you would hope they don’t! But it also involved a lot of paperwork, annual accounts and company returns to file and corporation tax to pay.

What is a Partnership?

As you might expect from the name this is where one or more people form a partnership to run a business together. It’s not as cohesive as a limited company; each partner will have shares – the amount varies according to the level of investment or input they put into the business – but each individual registers as being self employed.

Rather than being employed by the company itself like the directors of a limited company, each partner operates autonomously, although if one partner dies or resigns or goes bust, the entire partnership will have to be dissolved. It’s also worth noting that responsibility for any debts or creditors lies with the partners, rather than being limited as with a limited company. The benefits of a partnership is flexibility but it’s obviously key to ensure all partners agree on the levels of input and remuneration from the start!

Sole Trader

As an event organizer you may be a single person operating an event management service on a kind of project management level. For this you might want to set up as a Sole Trader.

There are lots of advantages being a sole trader. You have total control, bookkeeping is simpler and of course you get to keep all the profits! Plus of course you can make all your own decisions quickly and choose the direction your company will take without having to compromise.

There are downsides too of course, one of the biggest being that should the worst happen you are personally liable for any debts incurred. It’s also the case for many sole traders that they make bad decisions purely because there is no opposite point of view. Sometimes it works well to have two or more opinions, or a sounding board for ideas. Being a sole trader can be lonely, and it can also mean it encroaches into your private life considerably. Having said that, anyone running their own business, whatever the setup, will tell you that this is the case anyway!

For advice talk to your accountant or local Business Link advisor.

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