# Legal Structure



## Chilspe (Aug 2, 2014)

Hi,

My business partner and i have just purchased a converted Piaggio Porter and are looking to sell coffee at car boots, festivals, County shows and events. We are currently going through the paperwork to establish the business but are uncertain of which legal structure to go for when registering the company. Obviously this is very much context dependent, but for two chaps just starting out can anyone who has experience or can relate to our situation suggest what would be the most appropriate legal structure in your experience.

Ultimately it is going to be a partnership of a ltd company but which is the most appropriate for a very small mobile coffee van?

Thanks


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## Eyedee (Sep 13, 2010)

I think maybe you need to take "advice" on this matter rather than look to a forum of coffee addicts to decide your business legalities.

Ian


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## 4085 (Nov 23, 2012)

There is no such thing as a partnership of a limited company. A partnership is an agreement between two or more people laid down via the partnership agreement which a solicitor would draft up. A limited company has articles of memorandum, is more structured and requires a share value and you become directors. Another way of looking at things, is if you do not need to limit your liability, why be a limited company?


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## ajh101 (Dec 21, 2013)

Probably more importantly, check with an accountant!


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## UncleJoe (Aug 2, 2014)

Hi Chilspe,

First off, good luck!

Secondly, I echo what Eyedee said - you should take proper advice on what to do. I initially trained as a lawyer but am not practising as one as I never managed to secure the last bit of on-the-job training that I needed to do to become qualified. However, I do know that if you speak to a good company lawyer ("good", not "expensive") they should be able to advise you on issues such as:

(i) the basics of and differences between an incorporated company (Ltd) and a partnership;

(ii) the advantages/disadvantages of each type of structure, e.g. having to file annual accounts with Companies House, possible differences in the rate of tax that you would have to pay, etc.

(iii) depending on your short/medium term plans, which type of structure best aligns with/allows you to accomplish your goals.

The other issue to be aware of is that if you run a company serving food and/or drinks to the general public, there are various rules/laws governing issues such as food hygiene, public liability, etc. I have never looked into these areas in any detail but if you speak to a good solicitor, again they should be able to advise you or point you in the right direction.

All the best!


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## MrShades (Jul 29, 2009)

Probably look into LLP


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## MikeHag (Mar 13, 2011)

Given the basic info you've provided, you don't want to go for a limited company structure. The benefits would be limited liability, but the additional admin burden isn't a good idea for a small business, and if you're running the business carefully then you shouldn't need the safety net of limited liability.

Partnership has the benefit of not having to publish detailed accounts (unlike Ltd Co), but you would be well advised to get a solicitor involved to draft the partnership agreement. That's a standard caveat with partnerships and helps make them more future-proof.

Since your business is unlikely to put either partner into the High Earnings tax bracket, sounds like partnership is the better of those two. BUT it may not be the best option. As mentioned above, there is now a Limited Liability Partnership structure, which has additional financial reporting/audit requirements. Could be right for you, but I doubt it. Used more for large partnerships with many partners.

Speak to any firm of accountants and they will be able to advise you. It's basic stuff that all accountants learn very early on in their studies.


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## centaursailing (Feb 27, 2012)

Chilspe said:


> Hi,
> 
> My business partner and i have just purchased a converted Piaggio Porter and are looking to sell coffee at car boots, festivals, County shows and events. We are currently going through the paperwork to establish the business but are uncertain of which legal structure to go for when registering the company. Obviously this is very much context dependent, but for two chaps just starting out can anyone who has experience or can relate to our situation suggest what would be the most appropriate legal structure in your experience.
> 
> ...


I agree with most of what's been posted already, but have a couple of insights which may help and are based on running a sailing school since 2003 which was incorporated in 2007.

I decided to go for limited liability because as a one-man-band the spectre of my wife, if something should happen to me, having hundreds of students on her hands wanting to be able to finish their course or get refunds just wasn't worth the risk. Forming a limited company was the solution for this. The other consideration (in 2007) was that as self-employed I was paying class 4s or put put it another way an extra 8% tax on profits after income tax had been accounted for. As the director of the limited company I no longer had to pay class 4 contributions and what's more, could take earnings from the company in the form of dividends. If the dividends don't push you into higher rate income tax then there's no tax to pay because it's already been paid for by the company. If you do go into higher rate then the excess becomes taxable at the higher rate. Please note these considerations were true in 2007 and need checking to see the current situation.

Hope this helps a little.

Another benefit is that your partners could also be a director (and earn dividends) or company secretary (and be paid a salary which help by reducing overall profits on which the company is taxed). If either partner is below the relevant threshold then they may have no additional tax to pay but as already suggested more research is worthwhile. Paying a company secretary at or just below the lower earnings limit means no payroll admin is needed.


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## jeebsy (May 5, 2013)

centaursailing said:


> As the director of the limited company I no longer had to pay class 4 contributions and what's more, could take earnings from the company in the form of dividends. If the dividends don't push you into higher rate income tax then there's no tax to pay because it's already been paid for by the company. If you do go into higher rate then the excess becomes taxable at the higher rate. Please note these considerations were true in 2007 and need checking to see the current situation.


That's how I operate currently, still the case. Dividends are tax free up to a threshold of about 43k


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## oop north (Jun 23, 2013)

jeebsy said:


> That's how I operate currently, still the case. Dividends are tax free up to a threshold of about 43k


Not strictly correct - effectively deemed to have had basic rate tax already paid on them (they have suffered corporation tax so not tax free), so no additional (income) tax to be paid until you become a higher rate taxpayer

the main disadvantage of company is having to prepare two sets of company accounts (1) full set for shareholders (2) cut down "abbreviated" set for filing at Companies House, and also file annual return. Probably more expensive than having partnership accounts drawn up (or you can do yourself). You almost certainly need an accountant to prepare company accounts for you. As a partner, though, you have to pay class 2 weekly nic and class 4 profit related nic, the total cost of which is likely to be enough to cover cost of having company accounts drawn up. From tax perspective then a company is probably better but you do have to comply with the Companies Act etc

whether self-employed or a partner need to prepare a tax return each year

another thing - you do need to run full PAYE payroll I think even if you pay employees under primary threshold - real time filing introduced in last couple of years


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## centaursailing (Feb 27, 2012)

oop north said:


> another thing - you do need to run full PAYE payroll I think even if you pay employees under primary threshold - real time filing introduced in last couple of years


There is NO need to keep any PAYE records if the payments are at or below the lower earnings limit. I've had this confirmed on several occasions by HMRC because it's how my company pays the company secretary (my wife).


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## jeebsy (May 5, 2013)

centaursailing said:


> There is NO need to keep any PAYE records if the payments are at or below the lower earnings limit. I've had this confirmed on several occasions by HMRC because it's how my company pays the company secretary (my wife).


This changed last year iirc and payroll had to be reported to hmrc in real-time


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## Drewster (Dec 1, 2013)

centaursailing said:


> Another benefit is that your partners could also be a director (and earn dividends) or company secretary (and be paid a salary which help by reducing overall profits on which the company is taxed). If either partner is below the relevant threshold then they may have no additional tax to pay but as already suggested more research is worthwhile. Paying a company secretary at or just below the lower earnings limit means no payroll admin is needed.


I would recommend speaking to an accountant or other adviser but:

First of all can I clarify "partner" and "business partner".

Your "partner" means your husband/wife - or long term "life partner"

Your "business partner" means someone who is taking the plunge with you (and will be doing an "equal" amount running the business)

1) Be careful about your "partner" being a director of the company - being a director means that they are accepting some of the responsibilities for running the company (which they may or may not want).

Both you and your "business partner" could well be directors of the company (and both have the legal responsibilities etc)

2) Your "partner" (or indeed "anyone") could be a shareholder of the company - it is being a shareholder that entitles you to dividends that the company pays out.

You and your "business partner" would probably be shareholders of the company (quite likely equal shareholders)

You need to be careful how you allocate (or sell) the shares of the company as the every dividend paid by the company MUST be paid proportionally to the shareholding. (so if you hold 40% and your "partner" holds 10% and your "business partner" 50% when a dividend is paid it must be split 40/10/50).

This arrangement continues should you split up ie If you do split up/divorce they are still entitled to the relevant dividends (and at this point getting the shares "back" isn't necessarily as simple as them just "giving" them back - even if you now estranged "partner" is amicable).

Plus in this example your "business partner" actually has more control over the company than you (and if you fall out with your "partner" you are definitely no longer in control).

3) The post of "Company Secretary" has nothing whatever to do with being an employee of the company.

The Company Secretary is an officer of the company - with some responsibilities.

And the role of Company Secretary is in fact no longer "needed" (it used to be required).

4) Your partner (or "anyone") could be employed by the company (they could even be employed as "a" secretary) and their salary etc would be costs to the business - reducing profit and therefore corporation tax due.

5) You and your "business partner" can also be employed by the company - similar situation re salary & corporation tax.

6) (Arguably) anyone you employ should be paid a realistic amount for the "work" they do for the company.

i.e. If you employ your "partner" as "secretary" and pay them circa £10K p/a* the Tax Man might (if he ever looked) expect you to be able to demonstrate that they do circa £10K of "work".

(Your "business partner" also needs to be happy about al the nuances of this)

*without getting too involved the £10K is roughly the level to remain under the personal tax allowance and without getting tied up with National Insurance (employers and employees)

For you and BP (as directors) paying circa £10K as a salary is a method of maintaining your NI situation (You may all things being well get a larger amount in dividends (as shareholders) than your salary)

If you are reasonably confident on the company earning a decent amount for a decent amount of time there are advantages in the Limited Company route - but it is not 100% hassle free.


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## 4085 (Nov 23, 2012)

Can I just check, that all this is assuming you do not crash and burn immediately, as opposed to presuming you are going to make so much money that you both become higher rate tax payers?


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