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A freelance career in the creative arts
A freelance career in the creative arts

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1 Options for structuring your business

When setting up your business you need to decide which legal structure you will operate in. You’ll explore some of the more commonly used structures in detail throughout this week.

A collection of shapes connected by lines and arrows. A hand is placing a shape into position.

Watch this short video from HM Revenue & Customs (HMRC), the UK Government department responsible for collecting taxes. It explains the main legal business structures available to you.

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Transcript: Video 2

[TEXT ON SCREEN: I’m registering my business – which structure should I choose?]

SPEAKER:
When you set up your business, you'll need to choose a legal structure. This affects how you run the business and pay tax, so it's essential to choose the right one for you. There are three structures. The first is sole trader. This is the simplest to set up and use for record keeping. As a sole trader, you make all the business decisions and the profits are yours. You're responsible for any debts.
The second is partnership, but there are different types of partnership to consider. In a business partnership, two or more people run the business and share profits equally. All partners are responsible for any debts. A limited partnership has general partners and limited partners with different roles and liabilities. At least one general partner must be running the business, and one or more limited partners can contribute capital, such as money or property.
A limited liability partnership has at least two registered members. Each can take part in the day-to-day running of the business. Partnerships can be complex in the way they're set up and pay tax. If you opt for one of these, please make sure you can meet the requirements.
The third structure is a private limited company. This is legally separate from the people who run it. That includes finances which are separate from your own. The company can own property and is responsible for its debts. The company is limited either by shares or by guarantee. In the first case, it has shareholders who own the shares. It can keep any profits it makes after paying tax.
A company limited by guarantee has guarantors and invests profits back into the business. All private limited companies must comply with strict rules around reporting and paying tax. If you opt for this setup, please make sure you can meet these requirements. There is more information on legal structures and how to choose the right one for your business on gov.uk.
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Which of the structures sound most relevant to you at this stage? For most, it will probably be sole trader, and you’ll learn more about that and limited companies later in the week. Partnerships are more complex and beyond the scope of this course. If you want to explore the legal structures in more detail the Further research section at the end of this week provides a useful starting point.

It is important to note that you are recommended to register your business as soon as you can after you start trading. Also, you’ll find that most of your freelance clients, particularly if you are offering a service of some kind, will require proof that you are registered before they are able to pay you.

Activity 1 What questions do you have?

Timing: Allow about 5 minutes

Throughout the rest of this week you will find out more about the different business structures you can choose between. At this stage, though, pause for a moment to consider whether you have any key questions about this aspect of your business. For example, what information do you need to know before you can make a decision? Make a note of your questions in the box below.

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Discussion

Your questions might have included:

  • Why is it important to make a decision about this?
  • What do I need to know about in order to decide on the right structure?
  • What are the options open to me?
  • Who do I need to register with?

Giving some thought to this now, even if your questions are vague at this point, will allow you to more easily identify the information you need as you work through this week. This can be a complex issue, but there is support and advice available to help you make your decision. If you don’t find the answers you need within this course, go back to Week 3 and look at some of the online resources listed there.

In the next section, you’ll start to look at individual structures in more detail, starting with the most common choice for freelancers in the UK – the ‘sole trader’ business structure.