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How to Trade When Starting a Business


There are various methods by which a person or group of individuals can start and carry on a business. There are some which are commonly used such as setting up a limited company or operating as a sole trader and there are others which are less common and prone to be used for specific types of business, such as a group of Solicitors trading as a partnership.

Deciding how to trade will be one of the decisions which are required to be made when starting a new business and might be carried out in consultation with an Accountant or by conducting research via websites such as Start-up Wales.

Trading vehicles or means used to carry out business activities include:

Whilst a detailed description of each of these trading vehicles is given separately, it is worth listing the main attributes side by side to enable a comparison to be made.

Factors Which Influence the Choice of Trading Vehicle

Factors which often influence the choice of how to trade include both tangible (for example tax savings and benefits) as well as perceived advantages such as the owner’s personal management style and ability to perform administrative tasks in a timely manner.

One important point to bear in mind when deciding how to trade is that whichever business entity is chosen at the initial stage, it is possible to later transfer the commercial activities to a different trading vehicle.

That said, there are some obvious practical considerations which might create additional expense and disruption in changing from say a sole trader to a limited company. These might include the reprinting of business stationery to include a company number and registered office and the advice and work of an Accountant to ensure that undue tax liabilities did not arise during the transition.

Like most business decisions, an element of planning and forethought as to where the entity will be in two, three or even five years time might result in a decision being made in terms of how to trade which can cater for both the immediate and longer term future of the business.

Any analysis or commentary on the different types of trading vehicles would not be complete without referring to risk.

Starting any new business will involve some element of risk and irrespective or how good the products or services are, part of the risk will be that the business will fail.

Various features can be included in the new business in order to mitigate this risk although none are likely to be able to irradicate it altogether. With this mind ensuring that any negative monetary effects of the business are not linked to the personal well-being of the owner could be a highly weighted factor affecting the decision of how to trade.

In such circumstances the limited liability afforded by both companies and LLPs might elevate these options above the others.

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