Q: Can two people run a sole trader business? Also, can we register a newly formed limited company as 'dormant' and start off as a sole trader?
May 23 2011
Answered by: Clive Lewis Ask a question
A sole proprietorship, also known as a sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor's. This means that the owner has no less liability than if they were acting as an individual instead of as a business. The proprietor or sole trader can however employ a manager to run the business, but the risks and reward remain the proprietor’s.
However, It is entirely possible for two or more people to own and manage a business by means of a partnership. They have to decide how to share profits or losses and how business decisions are made. Often one person looks after the finances, book-keeping, and the other deals with sales, talking to customers etc. Also they have to decide who brings what assets or money into the business. It is usual to put these things into a partnership agreement, so that in the event of disputes the agreement lays down procedures to resolve them.
It is possible to create a limited company which does not start trading immediately it is formed and to start a business as sole trader or partnership. But I’m not sure why you might want to do this. Limited companies can be formed in 48 hours or sooner with the right help (you can buy 'off-the-shelf' companies) so it is unclear why you would want to do as you suggest.
The taxation of a sole trader/ partnership is different from a limited company. Limited companies pay Corporation Tax on profits whereas a sole trader or partnership pays Income Tax and National Insurance on profits. Most small businesses which start as limited companies do so for tax or national Insurance reasons. Another advantage of a limited company is that you can have as many “owners” as the share capital allows, so it is straightforward to create new shareholders.
For more on legal structures of businesses go to:
http://www.businesslink.gov.uk/bdotg/action/layer?r.l1=1073858805&r.l2=1085161962&r.s=sm&topicId=1073865730
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