One of the judgements and actions which have to be considered whenever a business is first established can have considerable effects for a long time. The foundations put in place at the beginning of the business are essential, and will affect the success of the business. To ignore this particular basic process may cause the business and its owners substantial continuing difficulties, to the degree that their growth is hampered or even the basic viability of the venture is compromised. On the other hand, if your fundamental set up is carried out with the best advise obtainable, the business can flourish because of this.

This article briefly describes a few of the main tax as well as financial considerations that are involved. It assumes that your comprehensive review of the market was already carried out, forecasts have been developed into a strategic business plan and the required finance has been acquired.

The business person is also assumed to have made a decision to trade as an unincorporated business. Generally, most smaller businesses need only consider incorporation into limited liability companies following trading for quite some time. At first, a limited company may not be attractive for the following reasons:

• The limited liability is of relatively little protection for investors that are also company directors, if banks, other sources of financing, or trade creditors require personal warranties;

• The costs of complying with company legislation requirements, for example preparing statutory company accounts, having an audit and preparing annual returns, are greater for limited companies compared to sole traders or partnerships;

• The tax, national insurance and budget of a sole trader is normally a lot more flexible compared to a limited company.

In the United Kingdom the rate of company tax for small businesses is considerably less than the 40% higher rate of income tax. An organization may consequently be desirable where it is not necessary to take out profits as remuneration, which will be liable to both income tax and national insurance contributions. The majority of small businesses pay tax at 21% on yearly profits of up to £300,000 (30.5% on earnings between £300,000 and £1.5m) but bigger companies pay out taxes at 28% (on earnings over £1.5m a year).

The earnings steps mentioned previously are proportionately reduced where there are connected businesses. Since 6 April 2001, it has been possible to form a limited liability partnership ("LLP") in the UK. An LLP offers limited liability protection in the same way as for limited companies. Having said that, an LLP differs from a limited company in that its profits are subject to taxes on its associates in the same way as for regular partnerships with the main distinction in comparison to salaries being a considerable saving in National Insurance Contributions. Therefore, an LLP provides the best of both worlds - defense against liability and lower NIC costs. For many smaller businesses, an LLP has become the preferred company structure option while starting in business.

It's very important for each and every new business launch to make the right choices in respect of all of the previously mentioned points. To guarantee this, the business owner must always seek professional help before the start of trading.