h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

Entry: An Introduction to Business Ownership - A1032832
Author: The Anonymous Researcher - U181368

How about this? Not very interesting (to most people), but I think its certainly worth having.

Totally agree with you. Great article. Speaking as someone who runs their own business (with a lot of help) this would have been invaluable in the early days. Not boring at all!
Take care
Boots

Thanks.

As the managing director of a Ltd company (number of staff = 1, me) I wouldn't say that a Limited company is extremely expensive to set up - although it is more costly than being a sole trader. There are agencies around that will handle all of the tedious business of incorporation, registering the company and its director(s) with companies house and all the associated paperwork for around £250.

You do have to register annual accounts with companies house so you will require the services of an accountant but this need not be expensive. You could choose to handle your VAT returns yourself throughout the year, as they are not that complicated for a one-man-band, and can then hire an accountant just to do your annual accounts.

Most contract IT workers are Ltd companies - I don't know why, that is just the convention.

Nice, balanced entry.
You might wanna change the title though, 'cos I (being the thick person I am) though it would be about setting up a business, etc. How about "Different types of business ownership"?
Oberon2001

Just a couple of comments.

Another disadvantage of partnerships can be where one partner is dishonest and/or incompetent. I've heard of partnerships where one partner has been thoroughly dishonest, leaving the other in horrendous debt.

It might be worthwhile putting details of the financial aspects of PLCs - there's a minimum amount (when I knew about these things it was somethings like £150,000 of shares issued) of shares, I think.

It also might be worth defining what a franchise is. Some people may not know.

I'm currently looking like having to start a business myself.

I think you need to further differentiate between limited companies and PLC's, as you currently lump them together, but the costs are massively different.

for example a limited company (in the uk) has 1 or more directors, a limit to the liability, and a need to submit annual accounts. the setup cost is quite small (by the time you need to do it, you can usually save enough from the tax you can claim back).

A PLC on the other hand is much more expensive, as it needs to be properly audited every year, rather than just submitting accounts. this is much more labour intensive, and thus costly.

you should probably mention that all partnerships nowadays should be limited companies, and that the limit should usually be the minimum allowed.

Great article,

responding to a couple of comments though.

Fat Kelli
IT contractors tend to become ltd companies to avoid paying National Insurance (NI). Instead of paying themselves a salary (on which NI and income tax must be paid), the pay themselves dividends on the companies earnings, on which they only have to pay income tax, saving themselves 9% which would go towards paying for things like hospitals and pensions. The government tried to close this loophole with new legislation, specifically IR35, which all the IT consultants protested about on the grounds that it would stiffle innovation and enterpise (and they would have to pay NI like the rest of us).

Xyroth
The UK Government also passed legislation, which allows partnerships to opt out of having unlimited liability. So a partnerships may or may not have limited liability. Interestingly enough, some of the biggest supporters of this piece of legislation were the big four accountancy firms :-
PWC
Ernst and Young
Deloitte & Touche
KPMG
who all now have changed to limited liability partnerships. Some of these firms are also large donors to the Labour party. In the wake of Enron, I can't think why these firms would want to change to limited liability partnerships.

Good choice of subject for an article, and well written. I learnt something from it.



Sprout

I became one after IR35 came in so instead of it being a loophole, it just ensured that I had to pay both employers and employees NI

The convention will remain however, because the agencies expect you to be a ltd company and often won't accept you on their books if you aren't.

This is an excellent topic for an entry, and you have the makings of a very good one here. I do feel that at the moment, however, it's a bit thin and needs some further work. Even though it's only an introduction to the subject, there are some important things that need to be said.

I notice that you list the need to keep accounts as a disadvantage for each type of company. There are two points about this:

1. If its common to all of them you don't need to mention it each time. Just point it out once at the start.

2. But why is it a disadvantage? It is an advantage to have accounts. Many small businesses fail through lack of adequate accounting. It's easily overlooked if you are trying to run a business, but you absolutely have to know what's going on. It's also very useful, if you have annual accounts, comparing one year with another.

So I would actually stress the importance and usefulness of keeping accounts.



>However, you may be blissfully unaware of, for example, the advantages of a co-operative business. This entry aims to educate you.

-- But you don't actually say very much about them, and the advantages and disadvantages you mention could easily apply to other types of business too.



>a sole trader business carries with it a lot of paperwork, for example – accounts, ordering and assorted correspondence.

-- This is nothing to do with the fact that it's a sole trader, but applies to all businesses, doesn't it?



>Advantages
>This type of business is easy to set up.
-- It isn't very hard to set up a ltd co either

>It is very flexible. The owner has the freedom to run the company how he or she likes.
>The proprietor can offer a personal service.
>He/she can keep all the profits to himself/herself.
-- These are all true of ltd co

>Finances are kept private.
YES - this is the chief advantage

>The business can be changed to suit local needs.
-- Ltd co also

One advantage to mention is that the accounting requirements are simple. You don't even need to produce a Balance Sheet if you don't want to, just a P&L. You can use Self-Assessment without having to employ an accountant.

>Disadvantages
>After normal trading hours, there still remains a lot of paperwork to be done.
>There is limited capital, so it is difficult to grow.
-- true of ltd co also. In fact it can be easier to borrow as a sole trader than as a ltd co. I think you mention this later.

>Unlimited liability (see above).
YES - this is the important disadvantage

>The owner must keep proper accounts.
-- See above

>Examples of Sole Traders
>Window cleaners
>Taxi drivers
>Fish and chip shops

-- I feel these examples are a bit narrow and misleading. A sole trader might also be an IT consultant, a chiropractor, an accountant or lawyer, a concert pianist, a freelance journalist, etc etc. You obviously don't need to give a long list, but should indicate the diversity rather more than your present list does.



>Partnerships
>Deed of Partnership
-- This usually only needs doing once

>certificates, and correspondence
-- which certificates do you mean? And all businesses involve correspondence.

>All partners have unlimited liability. If the enterprise fails they are responsible for all debts.
-- There's a very important point to be spelled out here. The liability is joint and several. If my partner fails to pay his income tax to the IR, I could have to pay it for him (as well as my own). This point cannot be over-stressed in an entry like this.

>Advantages
>More capital is available than in a sole trader business.
>The workload is shared.
>Professional partnerships mean that certain partners can be specialists.
>More varied ideas can be aired.
-- These are all true of ltd co as well.

>Disadvantages
>If it is a large partnership, capital is limited.
-- Why would that be?



>The shareholders do have limited liability. This means that if the business fails, they only have to pay back the capital that they invested in the company.
-- They don't 'pay it back' because they've already paid it. They lose the capital they've already invested.

>Advantages
>This type of business has more available capital than partnerships do.
-- Only if it's a plc, not if it's a ltd

>It has a legal position, as a company in it’s own right, not just a group of partners.
-- Yes, but you need to explain what this means. And it's not necessarily an advantage. For example, if it doesn't work out and the owners want to leave, the co doesn't just disappear as a sole practice or a partnership would. It has to be separately wound up.

>Disadvantages
>This type of company is extremely expensive to set up.
-- ltd cos are not very expensive to set up

>The company is legally obliged to publish its accounts annually.
-- You need to mention here that the requirements for a plc are much, much more stringent than those for a ltd.

>It is just as hard to obtain a loan as if the company was a partnership.
-- If it's equally hard, this is neither an advantage or a disadvantage.

>The business is less flexible.
-- Less flexible than what, and what do you mean by flexible?



>Franchises
>The franchisee owns the company.
-- You need to say which company - ie the co that runs the retail outlet

>Capital is raised from the proprietor’s savings, or from a bank loan.
-- Usually both. A franchisor will almost always insist on a proportion of personal investment by the franchisee, and wouldn't be happy with a 100% loan.

> The business has unlimited liability for the franchisee.
-- What do you mean? The franchisee will normally be a ltd co



Now one of the most important aspects of setting up a business in the UK is something you haven't mentioned at all - VAT. It is essential that anyone setting up in business contact their local VAT office and get all the info relating to VAT in general and their business in particular. There are a lot of requirements and regulations, and businesses can come unstuck through not paying attention to VAT.

There may well be important choices to be made. For example, a startup business might well not have to register for VAT, at least to start with. But you need to think about the effect of that, and whether it might be to your advantage to register anyway.

Anyway, there's enough bones to chew on

Phew, Bels, yes! Excellent feedback!

A point which can't be stressed enough though is that if limited liability is available, then for a partnership (2+propriators), you should set it up at the minimum level available.

this means that if you best friend that you went into business with turns out to be a crook, then you are only left covering the amount of the limited liability (hence the name of the term).

this guarentees that you are not made personally bankrupt if the business fails. I know of too many businesses where they thought it sounded clever to have £15,000 or more as the liability level, and it wiped them out personally as well as killing the company.

Wow, thanks for all your comments. To be honest, I don't know to much about business ownership - the entry is just amodified school project. But I'll have a look and see what improvements I can make. But it might take a while. Thanks again.

Would I be right in thinking that Winemaking and Solihull are topics you do know about? Because they are very good entries.

The problem with topics such as Clin Psy and Business Ownership, if you don't know much about them, is that you are virtually guaranteed to run up against people here who have many years experience and great expertise in such fields. So you'd only be wasting your time (as well as theirs). Maybe you're starting to realise this.

Best to stick to topics you either already know something about or can get really good information about, and write about those. Do take another look at the Writing-Guidelines.

Good luck!


Bels

I don't know bels, there seems to be plenty of willing helpers here.

and if we feel that our time is being wasted, we will say so.

after all, there was nothing stopping us from writing it first, but we didn't.

Bels, y'all are purely a genius. Exactly right. Perhaps I should put this in the Flea Market? What do you think?

*cough* No!
Oberon2001

I think if you include what is being said in the thread, there's no reason why you shouldn't push on with this. It's fundamentally OK, just needs a bit of revision in my opinion.

Sprout