Limited Company Vs Self Employed Vs Registering A Brand Name

Before doing anything, you should ask yourself:

- What am I doing?
- Why am I doing it?
- What will be the consequences of doing it?
- What are my ultimate goals in doing it?
- Do I even need to do it?

Small businessmen often get confused. They think they need to do X, when in fact it's a lot simpler, and they can just do Y, instead.

1. 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.

2. 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.

3. 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.

4. 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!

One other benefit of a limited company is that it can manipulate money in a way a private individual can't; by tax write-offs, dividends, salaries to staff, directors loans, grants and tax concessions.

As a business gets bigger, these can be very important.

Further reading:

• How To Set Up A Business In The UK
• Going From A Sole Trader To A Limited Company
• Which Services Do I Need?

• Register A Trade Mark
• Register As Self-Employed
• Register A Company With A Virtual Office Address

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