The following information is provided by Jamie Hunt of Legal Clarity Ltd.
If you choose to form a company from which to operate your online business you will have greater maintenance and set-up costs than if you simply start trading as a ‘sole trader’. Sole traders do not usually have to register with any body other than the relevant tax authorities. However, there are key advantages of forming a company, as described below.
If you operate as a sole trader you will usually be liable for all debts and other liabilities of your business without limit. In other words, your personal assets as well as your business assets would be at risk. However, if you form a company (a limited liability company) you will in almost all circumstances benefit from limited liability. This usually means your personal liability will be limited to the amount you have agreed to invest in the share capital of the company. Companies also come with quite a degree of flexibility allowing for further investment by new shareholders and the recruitment of additional directors to bring management expertise to your venture.
Companies often have more status with the business community than sole traders/proprietors. Customers and suppliers often prefer to deal with an official company, rather than a more informal sole trader.
Forming a company is usually cheap and straightforward and can be undertaken entirely online. If your company is formed as a one shareholder, one director company then there is likely to be little else to do initially, although you will probably have a requirement to keep the relevant companies registry up to date and keep and file accounts annually. Forms to update the relevant registry are usually relatively simple, likely to be available online and the content you need to insert may not change much from year to year.
The country in which you operate may have specific rules regarding names. Two companies cannot share the same name so when forming a company you will need to search the relevant registry to ensure that your chosen name is available and that no one else is operating under the same or a similar name. Even if you choose to establish yourself as a sole trader you will want to choose the name for your business carefully and perform checks to ensure that no one else is operating under the same or a similar name (particularly for the goods or services you supply and in the geographical location you operate). Matching your chosen name with domain name availability is also obviously critical.
Whether you form a company or not, operating online means that you will probably want to prescribe terms and conditions that apply to people viewing your website, as well as the terms that will apply to an actual customer that goes on to buy the goods or services that you supply. Advice from local legal sources should be taken on these issues.
In summary, forming a company is a cheap and straightforward process and in most circumstances brings the advantage of limited liability over operating as a sole trader.
Jamie Hunt, Legal Clarity Ltd
The information provided in this article is intended as a general guide only. It is not exhaustive or tailored to your individual circumstances.
