There are three real choices as to how to structure a business:
- Sole trader;
- Partnership; or
- Limited company.
- You are the sole owner of the business.
- You are personally liable for all business debts.
- There are no statutory requirements governing the format of accounting records.
- There is no need to have annual accounts audited (although you will be required to submit accounts and tax computations to the tax authorities).
- You own the business jointly with one or more people.
- You are jointly and severally liable for all the firm’s business debts.
- You are not obliged to publish your accounts or have them audited.
- You are treated as a sole trader for tax purposes on your share of the partnership profits.
- The liability of the owners (shareholders) is limited.
- Certain documents (e.g. Memorandum of Association/Articles of Association) have to be filed before you can begin to trade.
- You must prepare accounts each year and have them audited unless you pass an audit waiver resolution. Most small unregulated businesses in Guernsey are able to pass an audit waiver resolution.
Advantages and Disadvantages
Sole Trader / Partnership
- Easy to start up.
- Few legal formalities.
- No requirement to have an auditor.
- Unlimited liability - personal assets could be affected.
- Profits taxed at personal rates.
- Less advantageous pension rules.
- Limited liability.
- Continuity of existence - easier to pass down from generation to generation.
- Ideal vehicle for expansion - raising of finance is easier.
- Perception – clients and customers can perceive a more professional approach from a business run from a limited company knowing that they are complying with the Company Law.
- Only taxed on profits as they are taken out of the Company. Profits within the company taxed at 0%.
- Much disclosure of information - e.g. re annual accounts, Memorandum and Articles of Association.
- Tightly regulated by the Company Law.
- Higher set up costs and annual running costs.
- Less flexible profit sharing arrangements.