Choosing a Mode of Business for your B & B

When you decide to start any business one of the first question you will need to answer is the legal format you intend to operate in.

In simple terms you have three choices; Sole Trader, Partnership or Limited Company. Here we take a brief look at the benefits each can bring to your business. There are other options but we will look at the most common three ones.

Sole Trader: A sole trader (or sole proprietor) business is one which is fully owned by a single individual. Although others may be employed, the owner retains full responsibility for the business and any liabilities of the business.  

Advantages of a Sole Trader:

• The owner makes all decisions by themselves
• The owner retains all profits made by the business
• Easy to Set Up

Disadvantages of a Sole Trader:

• The owner has unlimited liability for any debts incurred by the business
• The owner will normally be responsible for raising any finance needed to establish the business
• The business will only operate if the owner is present

Partnership: A partnership may have between two and twenty owners. Each partner will probably invest into the business when they join, and in most cases take a share of any profits.

Advantages of a Partnership:

• Work can be shared amongst partners
• Business is likely to continue if a partner dies or leaves
• Partners can specialise in different aspects of the business

Disadvantages of a Partnership:

• Partners may not always agree on business decisions
• Partners will share any profits according to their share of the business
• Partners have unlimited liability

Limited Company: Limited Companies are a separate legal entity and exist completely independently of the owners.

Advantages of a Limited Company:

• Shareholders not personally liable for company debts
• Profits distributed as dividends with Tax and NI contribution benefits to owners
• Finances are completely separate from owners
• Can be beneficial when you come to sell the business

Disadvantages of a Limited Company:

• Slightly more difficult to set up
• Must complete Annual Accounts within defined time scales
• Regulations of Companies House must be followed

Summary: As you can see, there are pros and cons for each method of trading. It's therefore vitally important that you seek independent professional advice before reaching a decision.