Business structure
Most businesses start as a sole trader business or a limited company. If you’re a sole trader, you run the business yourself, keep all the profits, and you’re personally responsible for debts.
A limited company is a separate legal entity, meaning you’re not personally liable for business debts beyond your investment.
Once your business is set up, it’s possible to change structure in the future. The government’s website advises it’s usually easier to move from a sole trader to a limited company, rather than the other way around.
There are also partnerships (where responsibility and profits are shared with one or more partners) and social enterprises, which are businesses with a social or environmental cause.
Employing staff
With your business established, you may want to soon start employing people.
Indeed.com advises, “There are different types of employer, but only two ways of classifying the type of employer you are. These include using the structure of your company and its size. Depending on your organisation’s structure, you could fall under any of the following categories of employers:”
- Public (such as the NHS or police)
- Private (small and large companies owned by citizens/groups)
- Third sector/not-for-profit
Understanding tax
Taxes can be complex, but understanding your obligations from the start is important. Each business structure has its own tax requirements.
The government website advises that sole traders may need to pay income tax on their profits, which is done through a Self Assessment tax return.
In a limited company, directors may be required to pay income tax “depending on how they take money out of a company”.
The income tax rates and bands are different in Scotland. They’re the same, however, in England, Wales, and Northern England. Different areas in England, such as London, Manchester, Bristol, and Gloucestershire follow the same tax rules. Solicitors in Gloucestershire can provide legal expertise and clear advice on tax requirements.
Data protection
If you’re collecting, storing, or processing customers’ personal data, you need to comply with General Data Protection Regulation (GDPR) and the UK Data Protection Act.
Failure to do this can mean hefty fines.
To meet the requirements, your business needs to:
- Obtain consent for data collection
- Clearly explain how data will be used
- Securely store and protect the data
- Allow individuals to access, correct, or delete their data
Conducting a data protection impact assessment (DPIA) can be useful in identifying and mitigating risks related to data processing.
Business banking
It’s crucial to separate personal and business finances. Opening a business bank account will help you manage cash flow and keep organised records.
If you’re operating as a sole trader, you aren’t legally required to have a business account, but it’s recommended. For limited companies, it’s mandatory to have a business account.
Look for business accounts with low fees, online banking, and tools to help with financial management. Solicitors can advise on managing business finances.
Licenses and permits
Certain types of businesses require licenses or permits. Failing to obtain them can result in fines or the closure of your business.
Among the businesses requiring licenses are food and drink establishments, taxi companies, import and export businesses, and childcare and educational services.
The types of licenses needed depend on your industry, location, and the specifics of your business. Check the government’s license finder to see what you may need.
Protecting IP
Your company’s intellectual property (IP) is vital, especially if you rely on unique branding, creative work, or inventions. There are several ways to protect your IP:
- Trademarks protect business names, logos, and slogans.
- Copyright safeguards written, artistic, and musical works.
- Patents secure inventions and products.
- Design rights protect the visual appearance of products.
You can register your IP with the Intellectual Property Office (IPO) for legal protection. Failing to protect IP can leave businesses vulnerable to imitation.
Takeaway
These are just some of the basics for new businesses. First-time entrepreneurs should have a clear business structure, understand their tax requirements, use appropriate business banking, obtain any required licenses, and protect their IP.