When it comes to deciding on what type of company you would like your property investment business to be, you have several to choose from.
You could, for instance, make your money as a sole trader. Or perhaps you would prefer to benefit from the doors that being a limited company could open for you? Or, how about the easy administration involved in being a Limited Liability Partnership?
Different company structures appeal to different people. In order to try and help you decide what’s best for you, we have listed some of the main pros and cons of the three most popular forms of company structure right here:
Sole trader
A sole trader is when you run your own business i.e. you have no other employees, partners, shareholders etc. It’s you who makes the decisions and benefits from any profits or suffers if you make a loss.
Pros
▪ You’ve no-one to answer to (except your customers/clients and HMRC;
▪ Accounts are easy – just file a self-assessment form to HMRC every year;
▪ Unlike with a limited company, you don’t have to make public your takings.
Cons
▪ The buck stops with you. This means if there are losses you have to fund them from your own personal savings;
▪ You’ll often be excluded from national or global job contracts (since many only use limited companies);
▪ You’ll pay a higher tax rate.
Limited company
A limited company has its own legal identity – even if there is only one person involved with it. This means that, unlike a sole trader, an individual’s house isn’t at risk if he or she runs up debt, as the debt is in the company’s name, not the company’s owner.
Pros
▪ It’s actually pretty easy to set up;
▪ You pay Corporation Tax on profits – which is less expensive than self-assessment;
▪ If you need to buy equipment etc. for the company, then you can issue shares in order to raise money quickly and without paying high rates of interest from a bank loan.
Cons
▪ You’ll need to hire an accountant since the accounts will be more complicated. As an example of the complications, you’ll to need to send in a confirmation statement to - Companies House on an annual basis;
▪ Your company finances can be accessed by any member of the public;
▪ You can’t just take money out of the company finances whenever you feel like it.
Limited Liability Partnership (LLP)
An LLP is a partnership between at least two individuals in business. Each partner has ‘limited liability’ i.e. if the company runs into debt then they are limited to their share. At the same time, each partner is liable for their own professional negligence (such companies tend to be set up by professionals such as architects, accountants, lawyers, consultants etc). Partners can come and go.
Pros
▪ There’s no need to have board meetings or consult with shareholders when you want to introduce a new partner;
▪ There are less rules and regulations than you’ll find in a limited company structure;
▪ It takes a mere three months to shut down and move on.
Cons
▪ Just as with limited companies, profits and losses are available for public viewing;
▪ It’s not always easy to find investors – especially the hands-off type – since they would have to be involved with the day-to-day running;
▪ There are big financial penalties if you don’t play by the rules.
Author
Chris Kirkwood
