How To Come Up With A Business Idea - Part 3

How To Come Up With A Business Idea.

Part 3 of 6

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In our previous post, we came up with our crazy business idea - "Bubblegum flavour extracts limited".

We're going to sell bubblegum flavour extracts to dessert parlours, so they can use it to make milkshakes etc ...

Say we have 2 boxes full of product, what do we need to start trading?

Whichever option you choose, we highly recommend you keep reading to at least get a better understanding on how limited companies work - at least you'll know what to expect and when the right time is to switch!

For "Bubblegum flavour extracts limited" - we opt for a limited company as it makes more sense in terms of liability, security and tax efficiency in the long term.



Choosing how you will trade - choose the wrong type of company, and your house, car and bank account could all be at risk.



Annual returns & director's responsibilities (more on this later)

The company will need to file an annual confirmation statement (annual return) and most likely fulfil corporation tax responsibilities. This can be filed yourself (if you have the understanding) or an accountant can do this for you!

Registering our company with Companies House

Companies House is the official agency sponsored by the UK government that registers and lists the status of all UK companies. All new companies need to register with them either directly, or via an approved partner.

Anyone can start selling, right now

You don’t need to form a company. You exist as a legal entity and can open a bank account just for your sales. You trade as Jerome Mortimer. You sell stuff, and people pay you. Simple!
For tax purposes, you tell HMRC you are self-employed and then pay taxes on your profits.

Company Incorporation Fees

Every new company registered with Companies House will incur a £12 registration fee. No-one is exempt from this.

Preparing to set up our first UK Limited Company

You can have a trading name, only.

You can get a bank account with this business name: J Mortimer t/a Koala Trousers. Any cheques paid in with just the words ‘Koala Trousers’ as the payee will still be lodged to that account. As far as HMRC are concerned, you are just a self-employed person; you do not need to register your mere trading name.

But I don’t want other people to use my trading name!

You go to the IPO (the Intellectual Property Office) and register a brand name. This makes other people using ‘Koala Trousers’, in your niche, illegal. You can thus take action if you see that name being used by your competitors.

I’m worried about being sued / I don’t like trading just as an individual / I want to look more upmarket.

Ok, now you consider setting up a limited liability company. This creates a legal entity separate from you that can take payments and enter into contacts. If your business kills people, the company gets sued, not you.

It means you get to keep your house when you screw up!



The downside is that the company will have to be maintained. It will have to do annual returns (accounts) to HMRC and Companies House. A learned person can probably do this, for a company with very simple finances, but, usually, an accountant is employed. This is an expense and a chore.

So you need to weigh up the pros and cons of forming a limited company. Tip: eventually, and perhaps very quickly, you’ll work out why you need one; circumstances will demand it!

But now, we're faced with the question of Sole trader or Limited company?

What exactly are they?
And what's the difference?
And which one is better?

Well, they both have their pros/cons but in a nutshell:

We now know the following:

- The name of our limited company: Bubblegum flavour extracts limited;
- Luckily, the name is still available (not taken by someone else;
- We will use a registered office address for our company and director's address.

Avoid Sensitive names when choosing the company name.

Most names are acceptable to Companies House when forming a limited company, but there are a few exceptions, such as:

- Your proposed name must be different from that of a company already incorporated.

- Certain words like "British" or "Royal" must be substantiated by providing evidence of other related companies or companies operating in at least two different countries. You will need to apply for the use of sensitive words.

- Names containing words likely to cause offence are not allowed.

What's the difference between a company registered address and a director's registered address?

Every company needs to have an official registered address listed with Companies House. This address is publicly available to anyone and used to send correspondence to the company, such as invoices, legal notices and letters from Companies House and HMRC.

You do not need to physically be located at this address - you just need access to it.

Each director of a company also needs to list their official director's address with companies house - this is also publicly available and may be used to send communication specific to that director (legal notices etc..)

Luckily for sole-traders, they don't have this problem (to be required to have a registered address), however, they still sometimes opt to get a 'premium address' for reasons which we'll discuss more in detail later.


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In the next lesson, we'll go through the actual process of registering a UK Limited Company for "Bubblegum Flavour Extracts Limited".



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