A sole trader is the simplest, least regulated form of business structure in the UK. A sole trader owns their own business and is personally liable for all its debts. Liability is unlimited: the trader may lose all of their personal assets if the business is unable to pay its debts. A sole trader operating under a name other than their own name must show their real name at all business premises, on office stationery and on invoices. They must also include on stationery and invoices an address in the UK where documents relating to the business can be served.
Because there are few statutory rules affecting sole traders, this type of arrangement is best suited to small operations, particularly in service industries. Sole traders need to prepare accounts for the value added tax and income tax authorities but these accounts do not have to follow any particular format and do not need to be audited or made available to the public.
A partnership is two or more persons carrying on a business together with a view to a profit. A partnership is not a separate legal entity under English law. Partners are individually and collectively liable for the debts of the partnership business. A creditor can sue all or any one of the partners for the recovery of a debt.
It is usual but not obligatory to have a written partnership agreement because in the absence of such an agreement, the legislation governing partnerships is very limited and often unsatisfactory. As with sole traders where a partnership does not trade under the names of its partners, there must be displayed at its business address and shown on all business correspondence the name of each partner and an address in the UK for the service of documents. The accounts of a partnership are private. Many professions are partnerships as are many small family businesses.
Limited liability partnership (LLP)
This is a new business vehicle made possible in 2001. An LLP is a hybrid corporate business structure giving the advantage of limited liability whilst at the same time allowing the members to organise themselves internally as a partnership. In contrast to a traditional partnership, the LLP is a separate legal entity. It will itself be liable for the full extent of its liabilities. An existing partnership can convert to an LLP.
An LLP must register with Companies House. It must file accounts (displaying the profits received by the highest paid partner) and an annual return and notify any changes in the LLP's membership or in their members, names and addresses and any change to the Registered Office address.
An LLP is tax transparent. Its members will be taxed on their share of the LLP's profits and gains in the same way as partners in a partnership are taxed.
Most businesses wishing to establish in the UK will form a UK company limited by shares, usually as a subsidiary of the overseas company. A company can be public or private. There are four main advantages of using a limited company:
1.The liability of shareholders (the owners of the company) is limited to any amount which they still have to pay in respect of the nominal value of their shares. If no amount remains unpaid on the shares, shareholders incur no liability for the trading debts of a limited company.
2.The company is a legal person in its own right and can carry out most acts in its own right.
3.It is quick and cheap to incorporate a limited company.
4.A limited company trading actively is an effective way of protecting a name. The main disadvantage is publicity, as all limited companies must register with Companies House and all documents filed at Companies House are open to inspection.
If you want to go into business with a company already established in the UK to take advantage of its knowledge of the local market, you may wish to consider entering into a joint venture arrangement. The most common form of joint venture vehicle is a limited company.
Alternatively you may wish to appoint an agent in the UK. The agent will often have the authority to enter into agreements on behalf of the overseas company. It is usual to have an express contract between the overseas company and the agent setting out the terms of their relationship. However the parties must also comply with the Commercial Agents Regulations, which cover such matters as the remuneration of agents and the compensation to be paid to them if the agency contract is terminated.
There are also other forms of contractual arrangement such as a licensing, distributorship or supplier agreement.