Going into business for yourself is the dream of many a designer. Yet, when the day comes – it turns out that there are rather more options for the structure of their business than they had considered. It’s always best to discuss what corporate structure to use with an accountant or similar financial professional; that advice can pay huge dividends later on in the life of the business. However, we’ve put together a quick list of the most common structures and what we think you might want to know:
Sole-Trader
Sole traders aren’t always one-man(or woman)-bands but they nearly always are. The advantage of this kind of set up is that it’s incredibly cheap in most countries (though there are some countries where you have to register a sole-trader business in many you can just decide to start one and that’s all the formalities taken care of).
Author/Copyright holder: Jordan Williams. Copyright terms and licence: CC BY 2.0
Many countries also offer tax breaks, and less complicated tax arrangements for sole-traders. The downside is simple; you are liable for everything for the business. If you go broke and can’t pay your suppliers as sole-trading entity – you, the owner, will be personally liable for paying the debts.
Partnerships
There are many differing rules on partnerships around the world and you should take advice on the precise nature of a partnership in your country. In general a partnership is simply a collection of people running a business together with a formal partnership agreement. Partnerships are generally an unpopular entity for most types of business
Author/Copyright holder: Wirawat Lian-udom. Copyright terms and licence: CC BY-NC-SA 2.0
The advantage of a partnership is that there’s a clear management structure and a clear division of profits. The biggest downside is that partners will normally be held jointly and severally liable for debts. That means you could end up shouldering the entire partnerships’ debt personally if your fellow partners can’t pay. You should always take financial advice before entering into a formal partnership for this reason. If you leave a partnership you should also have yourself formally removed from the partnership list legally and immediately.
Limited Companies
You will normally have to pay to incorporate a limited company. The costs depend on the country you are in and whether you are buying a “shelf company” (one that has been pre-registered so that you can use the structure immediately) or whether you are looking for a bespoke company name and registration.
In general, tax burdens are more complex for limited companies and an accountant’s advice is essential on this. The biggest benefit of a limited company is that you are protected, as long as you weren’t negligent or fraudulent, from any liability for the company’s debts should it fail.
Most countries require a limited company to have at least one (and sometimes more) permanent director and also a company secretary. In some regions you can use an agent to fill one or more positions in others – the individuals will need to demonstrate ties with the company itself.
Summary
Choosing a company structure is complicated and getting it right is very important. Your design startup should always seek advice prior to choosing the type of company vehicle that they use. It could be very expensive to get it wrong. The good news is that it is often possible to transition a sole-trader to a limited company in the long run.
Header Image: Author/Copyright holder: Camille Rose. Copyright terms and licence: CC BY-NC-ND 2.0
