What business structure to choose or change to

Your business structure will affect how much you will have to pay in tax, the ease of paperwork, personal liability and how you can raise money. You need to chose a business structure before registering your business. Don’t worry, it doesn’t have to be daunting. We’ve  broken down the business structures that are suitable for a school club.

Think about how much paperwork you can handle, how much money you need to raise and how much liability you’re willing to shoulder.

Business structures

There are several different business structures you could consider. If you are a social enterprise, a company founded for the purpose of the betterment of society and the needs of community where profit is rechannelled into the company to continue the mission, consider the last four structures, all forms of registered charities.

Sole trader, the profits are registered and taxed as your personal income. Quick to set up, easy to run, this is the simplest model, but you are completely responsible for all debts, all liability issues and there is no support.

Partnership, means that you can set up your business with one or more people but you will still have a simple business structure. Partnerships are easy to set up and run but there can be issues with sharing or responsibilities. It may seem trivial at the beginning, but if there are disagreements further down the line, you need to make sure you are covered. You must make a formal agreement in writing, that sets down in a legally binding manner, the shared responsibilities of your business.  A lawyer can help you for a small fee as it is a relatively simple document. Again, unlimited liability and all debts are yours.

Limited liability partnership (LLP), you enjoy the same skill and experience sharing of a partnership but you can limit your liability for debt, meaning the debts are the business’s not yours so you could sell the business and its debts or make the business bankrupt without affecting your own bank account. On the other hand, it’s complicated and can be costly to set up. If there are disagreements between the partners, things can get very messy, so make sure you have adequate contracts in place between you. Partners must comply with legal requirements, such as submitting audited accounts to Companies House.

Private limited company (LTD),  this is the most expensive and complex form of business structure, Being a private limited company means there is a low personal financial risk from your investments and any debts or guarantees relating to the business. You are required to have at least one director and a company secretary. The directors must submit annual accounts, hold meetings and maintain the company’s public records as well as comply with any company house legal obligations. Private limited companies may not obtain or hold charitable status.

Company limited by guarantee (LTD), a quite different structure, this company model is mainly used by nonpoint companies that still want legal status.  They may be classified as a charity. They do not have share capital or shareholders, rather members who act as guarantors themselves. Directors have to comply with normal companies’ legislation, but their liability is protected. All funds must be channelled back into the business and may not be taken as profit by shareholders or members. Wages are not considered profits.

Community Interest Company (CIC), are special companies that have been created for those who wish to run a company for the benefit of the community rather than their own bank balances. The CIC Regulator must approve the registration of a company as a CIC and checks out that it really is established for community purposes and that its assets and profits are dedicated to these purposes. CIC companies are heavily regulated to ensure that they remain community minded.

Registered charity, if you do not have a lot of money available this is the best option for your school club. The charity is run by a management committee comprised of volunteers]. Th committee may apply for grants from charitable trusts and foundations. The problem with becoming a registered charity is the immense amounts of paperwork and the difficulties involved in finding enough dedicated volunteers who are willing to be on the committee. The club must be registered with charity commission and the members must all be DBS checked.

Co-operative a socialist style enterprise where the members who use the company are the owners. They are founded and run for the needs of the members. The members elect a board of directors. Debts belong to the co-op, there is no profit taking and liability is shared among the directors.

By becoming a member of ICAP you’re joining a community of like-minded professionals and business owners in the children’s activity sector working towards excellence