startup wednesday 8: legal issues & accounting

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  • 1.Session 8 Legal Issues Accounting

2. By the end of todays session you should:

  • Understand when and how to start legally registering your company in the UK
  • Know how to do basic accounts
  • Understand the minimum insurance you need
  • Know who to go to for more advanced / complicated issues

3. When should you legally register your startup?

  • As soon as possible
  • During the planning process
  • As soon as you finish your business plan
  • Just before you make a major purchase
  • Just before you sell anything

4. The main types of company

  • Sole trader
  • Partnership, which may be a
    • Limited liability partnership (LLP)
  • Limited companies, which may be a
    • Company limited by guarantee
    • Company limited by shares
  • Community Interest Company (CIC)
    • Often called social enterprises, although a social enterprise can also be a normal company

5. Other types

  • Charities
    • Limited company
    • Unincorporated association
    • Trust
  • Co-operative

6. Sole trader

  • Youarethe business
  • You can choose anyname(Google it first though)
  • Youmustkeep basic accounts, but not a balance sheet
  • Usually youdontneed an accountant

Sole traders can count a percentage of their losses against other tax they have paid.This is good if you are employed and earning more than 7,475.Sole traders are personally liable for all losses the business incurs. You cannot sell shares in your business. To set up call HMRC or visithttp:// www.hmrc.gov.uk You can do everything online. 7. Doing your accounts

  • End of year Self Assessment
      • Keep all your receipts(expenditure)
      • Issue simple invoiceswhen you sell anything
      • You can use your usual bank account, but its usually better to have a separate account
      • You will need toput aside a day every yearto work out what you owe (or can claim back) in taxes
    • It is usually best to set your financial year to be the same as the tax year, so itends on 5 April

8. Doing your accounts

  • An example!

9. VAT

  • VAT is atax , currently charged at 20%, collected by businesses on behalf of the Government.
  • If your business turns over (buys or sells) more than 70,000 in a year youmustregister for VAT.
  • You can alsochooseto be VAT registered.
  • If you are VAT registered then:

You canreclaimVAT you have paid on goods and services you buy for the business. Youmust addVAT to the prices you charge to your customers, and pay this to the Government. 10. Partnership

  • Youandyour partner(s) are the business
  • You are both responsible a bit like in a joint tenancy
  • Many partnerships go wrong
  • Youshoulddraw up an agreement with your partner

Partners are personally liable for all losses the business incurs. If your partner runs up losses and disappears, you are liable. To set up call HMRC or visithttp:// www.hmrc.gov.uk You can do everything online. 11. Limited liability partnership

  • You areonly liable for the amount of money you have investedin the business
  • You mustfile accountswith Companies House
  • Youshoulddraw up an agreement with your partner
  • Separate limited companies can together be a LLP

You cannot sell shares in the business. You can be fined if you do not file accounts correctly. You are personally protected from losses in most cases. In some cases you can claim losses against personal tax. To set up use an online service such aswww.companiesmadesimple.com 12. Company limited by shares

  • The business is aseparate entity
  • It isownedby its shareholders
  • It ismanagedby its directors
  • The directors mustfile Year End Accountsin a certain way
  • Most people use an accountant (300 to 500 / year)

You can divide ownership of the business up with shares. You can sell shares in the business to investors. You are personally protected from losses in most cases. You can be fined if you do not file accounts properly every year. You cannot usually count losses against your other earnings. To set up use an online service such aswww.companiesmadesimple.com 13. Setting up a company limited by shares

  • You will need to decide:
      • Registered Office Address
      • Director Details
      • Shareholder Details
        • Can be same as director
        • Agree number of shares each shareholder will be issued with
      • Currency of shares

14. Issuing shares

      • Value of the company =Number of shares issued
      • X
      • Value of each share
      • So if you issue 2 shareholders 50 shares each, and decide each share is worth 1, the company is worth 100.
      • You can either pay the company upfront for these shares, or owe the company the money. If you owe money when the company ceases trading, you will have to pay up!

15. At the end of the year

  • Complete your annual statutory accounts and file at Companies House
  • Complete an annual self assessment (Inland Revenue)
  • Make an income statement showing what your income and costs have been and what profit (or loss) you have made
  • Make a Balance Sheet
  • Complete your Corporation Tax and VAT returns
  • Process the PAYE for any employees you have usually at least one (yourself)
  • You can use online accountants to do all this for you (if you use their online accounting software)
    • www.cheapaccounting.co.uk(from 29.99 per month)

16. Company limited by guarantee

  • The business is aseparate entity
  • It is hasmembersnot owners
  • The members are thedecision makersfor the company
  • They may appoint a board oftrustees
  • The company will have aconstitutionwhich sets out how it operates

This type of company is usually used for charities or social enterprises. The members and trustees are protected from losses. The company can still make a profit and pay its members. Special rules apply if the company is also a charity. The company cannot usually be sold to profit the members. To set up use an online service such aswww.companiesmadesimple.com 17. Community Interest Company (CIC)

  • A limited company with special features
  • Acommunity interest testis used to check that the company works for the benefit of the community
  • Anasset lockensures that the assets and profits are protected

This type of company is usually used for social enterprises. It can pay limited dividends to encourage investment. Some public bodies and trusts will give grants to CICs. Some public bodies and trusts only give grants to charities. To set up visithttp://www.cicregulator.gov.uk 18. Charity

  • May be a limited company, association or trust
  • Must provide abenefit to the public
  • Must bedifferentfrom existing charities
  • Has a special status inlaw
  • Trusteesrun charities and have certain obligations

Charities can claim tax exemptions. Many companies, trusts and public bodies will only give donations and grants to charities. The law limits some of your activities. You attract grants but not investment. To set up visithttp://www.charity-commission.gov.uk 19. Insurance

  • Public liability insurance
    • Covers you if
      • You accidentally injure someone in the course of your work
      • Someone is injured at your premises
    • Many public institutions (eg Universities) require you to have it, but the law does not
  • Professional indemnity insurance
    • Covers you if you give advice (eg financial) to others and want to be insured against professional negligence
  • Employers liability insurance
    • Covers you if your staff are injured or become ill because of you
  • Go towww.insuremyliability.co.uk

20. Risk, Health & Safety

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