Many people mistakenly believe it is best to register a company to operate as a self-employed contractor. In reality, what is ‘best’, depends on your circumstances. We get asked a lot about these options so let’s look at a common misconception.
Isn’t registering a company best for limiting liability?
We tend to encourage entrepreneurs to set up companies. Registering a company creates a separate legal entity which means the company rather than the owner becomes liable if things go wrong. If you deal with multiple creditors this legal separation might be useful. However, company structures do not protect in all situations. If the owners are also managing the company as directors, they are still exposed to certain duties and liabilities as managers. Having a company structure could allow you to get investors in more easily as well – we discuss that in this article.
If you have few creditors and low risk generally, the idea of limiting liability may not be potential reason enough to register a company. Instead, if you are a sole trader it may be prudent to insure yourself against other industry-specific risks that might attach to you, for example, by taking out Professional Indemnity and Public Liability Insurance.
What are the other options?
Company or sole trader structures will work best for many people. However, we recommend thinking about the future, and how your circumstances might change. If you are likely to end up employing people, dealing with multiple creditors and managing complex inventory, it might be best to register as a company from the outset.
There are numerous options other than companies and sole trading, which is why we developed this useful comparison and our Startups Legal Handbook. We look beyond the obvious when we provide advice. We would be pleased to help you tease out your circumstances in more detail to help determine the best legal structure for you.
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If you have any further queries please do not hesitate to contact one of our experts at Parry Field Lawyers- stevenmoe@parryfield.com, yangsu@parryfield.com, sophietremewan@parryfield.com, michaelbelay@parryfield.com or annemariemora@parryfield.com
This article is general in nature and is not a substitute for legal advice. You should talk to a lawyer about your specific situation. Reproduction is permitted with prior approval and credit being given back to the source.
