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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3695
Experience:  Solicitors 2 years plus PQE
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I'm going to start my own business together with my friend.

Resolved Question:

I'm going to start my own business together with my friend. He is investing money, I am not. What is the best way to organise ownership of our business and relationship?
Submitted: 1 year ago.
Category: Law
Expert:  Alex J. replied 1 year ago.

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

Customer: replied 1 year ago.
Hi AJ, thank you for your response.
I'm not sure I know what limited company means. This is going to be a wine shop. What is the best way?
I would suggest to return his money from our profit.
He will definitely share ownership with me. This is why I'm doing this
His money will be starting capital to rent a place, make a stock and advertisment
Customer: replied 1 year ago.
Should I expect any further answer to my question?
Thank you,
Elena
Expert:  Alex J. replied 1 year ago.

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?

Customer: replied 1 year ago.
What are pros and cons of both ways? I believe from tax perspective company will be better probably
Customer: replied 1 year ago.
Thanks
Expert:  Alex J. replied 1 year ago.

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

Customer: replied 1 year ago.
Good morning AJ,
Thank you for your update.
Looking forward to hearing from you,
Elena
Expert:  Alex J. replied 1 year ago.

Hi,

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.

Expert:  Alex J. replied 1 year ago.

(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.

Expert:  Alex J. replied 1 year ago.

(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.

Expert:  Alex J. replied 1 year ago.

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.

Alex J. and 3 other Law Specialists are ready to help you
Customer: replied 1 year ago.
Hi Alex,
I need some time to have a proper read through your response.
I believe I will come back to you on Monday.
Thank you for your help and have a good weekend,
Elena
Expert:  Alex J. replied 1 year ago.

No problem. I look forward to hearing from you. Have a good weekend. Kind regards AJ

Customer: replied 1 year ago.
I think this is all I need. Thank you Alex for all your help with my question.Have a good weekend,
Elena