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Which type of business is right for you?
Each January Fashion Capital receives a host of enquiries regarding how to open a new designer collection business.
Everyone knows how hard it is out there in the current trading environment but that certainly doesn't put many earnest designers off so here are some handy hints to help you decide what type of business is right for you.

There are 3 main different types of companies you can trade from:

1) Limited Liability

2) Sole Trader

3) Partnership

what type of business is right for you

 

1) The Limited Liability Company (LTD) separates your personal assets from the assets of the business.  The company becomes the person and you work for the company. The main advantage of this type of business is that it protects your own personal assets such as your house/flat, car, entertainment centre, widescreen TV and all the other large items that you already own.  If you have a business problem and your business has to cease trading or liquidates then you will only lose company assets but NOT your own personal assets.

Company assets are items that you buy, which are invoiced to your company and paid for by company cheque / account or credit card.  It's up to you as to what you create as company assets but the main assets tend to include a company car or van, the lease on any business premises, computer system and office furniture. All of which are often purchased through the company.

You must be aware however that if you do experience business problems and have to close, liquidate or go into receivership and you have outstanding debts to pay then your creditors may chase you for their debts and you could lose any / all of your business assets. 

To buy or set up a limited company contact: www.companieshouse.gov.uk


2) To trade as a Sole Trader, you must register your details with Revenue and Customs within 3 months of starting to trade.  Contact: www.hmrc.org.uk

As a sole trader, there is no protection of your personal assets.  What are personal assets, become parts of your business, no protection for your house, car, telephone, games consol etc or other proud possessions?

It used to be easier to start your designer label business off as a Sole Trader because the amount of paperwork and administration required by legislation was minimal but now all company types require a similar amount of accounts and other paperwork.


3) To trade as a Partnership:  Like Sole Traders, business partners are also responsible for all the debts incurred by the business.  This does not only apply to debts incurred by that partner but any partner.

Again care has to be taken as creditors will take your personal assets to pay off debts incurred by other partners.
 
During our time at Fashion Capital we have held many meetings with 2 or 3 or even 4 people who want to enter into partnership arrangements. To date there has only been a handful of the partnerships surviving and being successful and this is mainly due to high expectations of each of the partners work loads but also because there was no head of agreement set up before business commenced. Partnerships have been likened to marriages, very unpleasant when they go wrong.  Help protect yourself in the first instant by having a specific partnership agreement drawn up by each of the partners involved with a clear job description and business role for each partnership. Ideally you would use a solicitor to confirm the terms but many can not afford such costs initially.

The key aim here is communication...everyone in the partnership should know their specific job and then there should be no duplication of effort and a pooling of resources for all concerned.

As part of our membership service at Fashion Capital we invite new members to meet the team and review strategy and plans; company formalisation is reviewed by our Director Jenny Holloway

 
For membership contact vanessa@fashion-enter.com

 
 
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