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Previously on "Does advice on avoiding being a sole trader/LLP apply to consulting partnerships?"
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Is there any point to setting up a company if there's no revenue and no investment? If you invest in the partnership to simply pay yourselves then will incur accountant's fees and possibly an unnecessary tax bill. I would transform this into a company when there's revenue.
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I ran my Plan B as an unincorporated partnership for a while. Aside from allowing me to get up and running without the minor hassle of setting up a LTD there's no benefits and plenty of drawbacks. I wouldn't do it again like that.
- No bank would work with us without being incorporated, so I had to use a personal account for banking.
- No way to manage the profits in a tax efficient way. Partnership returns go in with SA1 and you're paying personal income tax on the profits each year.
- Annual returns accounting is actually surprisingly complicated I found (unless you set up the partnership tax year to align to personal tax year, which I didn't!)
Only positive point is that it was no trouble setting up VAT registration for the partnership, but that's no different to a LTD so not a plus in favour of the unincorporated partnership / sole trader model.
Transition to a LTD was however painless and an accountant had no difficulty working out the transfer of the assets into the new LTD when the time came.
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Originally posted by jayn200 View PostI would get a company up as soon as you are starting to incur expenses or try to get some revenue. If that's right away then start one right away. I wouldn't run any transactions through partnership or as sole trader personally ( I have in the past ).
If you want it to be a real business you need to treat it like one from the start. There is a mentality thing there that may not be tangible but it's important.
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I would get a company up as soon as you are starting to incur expenses or try to get some revenue. If that's right away then start one right away. I wouldn't run any transactions through partnership or as sole trader personally ( I have in the past ).
If you want it to be a real business you need to treat it like one from the start. There is a mentality thing there that may not be tangible but it's important.
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I set up a company recently to do small pieces of work. If you do your research then it isn’t hard to do all the statutory and admin work yourself. Like Eek said, mettle bank account gets you access to accounting software. Alternatively, use a free bank account and then chose a cheap accountancy software that can do your filing.
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Running a company isn't going to be expensive.
A mettle bank account will give you free freeagent access and with that you can do your company tax return.
And given that you agree that you state it might be a problem for companies to deal with none limited companies I would just create one.
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Originally posted by Paralytic View PostWe were fortunate that we found clients who would work with non-incorporated entities, so, as others have said, that could be the driver for a decision to form a Ltd company sooner rather than later.
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What sort of income are these side-line consultancies expected to bring it, and how long before you expect to be able to make a decision to move ahead with a Ltd company.
I went through something a number of years ago where I and another person had a business idea. We individually tested the market for a few months. We each initially did the work as self-employed, as the revenues were relatively low and under the VAT threshold, and then formed the Ltd company once there was a proven market.
We were fortunate that we found clients who would work with non-incorporated entities, so, as others have said, that could be the driver for a decision to form a Ltd company sooner rather than later.
The risk with that approach would also be if your research was expected to create IP with a value - if so, best have that up-front agreement that the IP belongs to an incorporated entity. There's nothing like a dispute to sour a friendship....Last edited by Paralytic; 27 May 2021, 11:04.
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Originally posted by Lance View Post
I know that bit. I don’t know what advantages there are of a partnership over a LTD. What are ‘the joys’?
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Originally posted by NotAllThere View PostThey wanted it because they wanted the protection of being limited liability and the joys of being a partnership. Prior to this, partnerships had unlimited liability.
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You may find that, irrespective of which vehicle you prefer, your hand will be forced by what the client/agency is willing to work with. This unfortunately isn't easy to gauge ahead of time and you may have to ask around prospective clients as you already mentioned.
It needn't be a large admin overhead to set up and manage a LtdCo. Things like Articles of Association sound daunting but there's a standard template to use and you just copy that. You only change those if your company wants to do something different. An accountant will help you with that and may even offer a service to do the initial registration for you.
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Originally posted by Lance View PostYes. Talk to an accountant.
I can’t answer the questions directly but in general a LTD. company is the easiest way.
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Originally posted by Lance View PostLLPs basically allow a large, privately owned company to get limited liability and similar tax breaks. Not sure why, but some consultancies wanted it and Toby Blair obliged.
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Yes. Talk to an accountant.
I can’t answer the questions directly but in general a LTD. company is the easiest way.
LLPs basically allow a large, privately owned company to get limited liability and similar tax breaks. Not sure why, but some consultancies wanted it and Toby Blair obliged.
A LTD with a 50:50 share split would be more common and easier to administrate IMO.
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Does advice on avoiding being a sole trader/LLP apply to consulting partnerships?
BACKGROUND
I am expecting to be made redundant next week, and treating it as an opportunity to do some research and development with a friend.
Our primary focus would be in research, requiring a lot of time but little expenditure, so we were considering forming a general partnership while exploring ideas, and transitioning later to a limited company in the (actually quite unlikely) case that the research paid off.
The hope was that this would limit the amount of admin/accounting overhead during the initial research stage (and if we needed to close the company).
However, to be able to fund the research, we would also like to run one or two small technical consultancy projects on the side. i.e. work together to solve some problems for clients on a time and materials basis (not quite sure if this should be described as consultancy or contracting - we would both be providing advice on what to implement and doing the technical work of implementation).
Looking at this site, I found some things that seem a bit concerning.
However, I don't have the basic knowledge to understand whether these apply to our situation (as it is a different type of company, and perhaps there are different answers for consultancy or contracting).
QUESTIONS
1) Is this idea a non-starter? i.e. do people here find businesses unwilling to have consultancy contracts with general partnerships?
(I can ask the prospective clients, but just wanted to check if there is a standard answer before asking the question)
2) Does anyone here actually operate as a general partnership offering consultancy services?
I have found some sites that say there is a usual progression from sole trader to general partnership to limited company, but very little evidence on this site that this is true.
Most people seem to have their own limited company or use an umbrella company.
3) If anyone does operate as a general partnership, would the contract for services refer to the company name, or does each individual need their own contract?
(I have found that a general partnership is not a separate legal entity so not sure if it makes sense to have a contract with the company?)
4) Any other advice? (I am finding the business/tax research all a bit new and overwhelming so getting tempted to abandon this dream and search for a new job instead)
META-QUESTION
5) I would like to get some professional advice before starting the business, but not sure who I should be asking.
Do you think the questions above are better answered by a solicitor or an accountant?
Last edited by Contractor UK; 7 July 2022, 17:43.Tags: None
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