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Hi, Thank you for your question and welcome. My name is ***** ***** I will assist you. Is the business a limited company? Does he expect to repay you the money? Will he give you shares? What will you use his money for? Kind regards AJ
Thank you. My apologies but I am online periodically, if you do not hear from me right away, do not worry I will be working on your question and will respond as soon as possible. Do you want to form a company to operate the business or will you operate the business in your personal names? Will this individual work for the business?
Hi Thank you. I will prepare a response detailing the pros and cons. I will revert to you as soon as possible. Kind regards AJ
Thank you have three ways to structure this:
(i) A limited company
(ii) A partnership
(iii) A sole trader (where this individual lends you the money).
I will explain each in turn:
(i) A limited company is a distinct legal person. It can borrow money, enter into contract in its own name, employ people etc. It is managed by its directors and owned by the shareholders (who can be the same person). A company raises money issuing shares or borrowing money. A shareholders liability to that company is limited to the number of shares they have paid for. If the company goes insolvent the shareholders are protected from liability within reason. A company will earn profits which can be distributed by dividend. Profits are taxed at corporation tax rate 21% - when they are distributed a shareholder will have to deal with them in accordance with their own personal tax affairs. If the owner of a company is also a director they can pay then selves a salary as an employee which counts as a cost of the business.
(ii) Partnership - a partnership is essentially an arrangement where by two individuals working in common share in the profits and losses of the business. This is not a distinct legal entity, but is capable of entering into contracts and trading in its own name. The partners will equally share in the profits and losses (unless agreed otherwise) and they have the power bind the partnership to a contract. I would not recommend this business model unless you implicitly trust the partner.
(iii) Sole trader - You trade in your own name and take on all the business liabilities. All profits are charged to income tax and if the business does not work you are personally liable.
Option (i) is probably the best method. It requires some annual administration (accounts and company filings) but they can be done online initially. You can issue shares to your friend for his investment and sign a shareholders agreement to determine when profits are distributed and terms upon which you can claw back his shares if you ever fell out. You will also not be personally liable for any of the company activities.
No problem. I look forward to hearing from you. Have a good weekend. Kind regards AJ