How to form a business


  1. 1 Involve professional advisers (eg an accountant) from the outset.
  2. 2 Consider whether you will be in sole control of the business or will share ownership or involve external investors.
  3. 3 Consider whether a company or limited liability partnership (LLP) will offer worthwhile financial flexibility, protection of personal assets and credibility with customers, suppliers and lenders.
  4. 4 Consider whether the administrative burden and costs, and the disclosure requirements, of a company or limited liability partnership will be justified.
  5. 5 Investigate the likely effect of different business forms on your tax and National Insurance position.
  6. 6 Choose the most appropriate business form: sole trader, partnership, LLP or limited company.
  7. 7 Draw up an agreement with the key individuals involved covering, for example, strategy, remuneration, responsibilities and 'what if' scenarios.
  8. 8 Choose a trading name; check that it is permitted, and is not already being used by another, similar business.
  9. 9 Use a company formation agent (or your accountant or solicitor) for the legal formation of a company or limited liability partnership.
  10. 10 Check any legal requirements (eg licences) with your local authority and organise insurance.
  11. 11 Contact HM Revenue and Customs to organise tax and National Insurance (and PAYE if you will be an employer); if necessary, register for VAT with your VAT office.
  12. 12 Organise systems to keep records and ensure that you can comply with statutory requirements (eg filing annual returns).

Cardinal rules


  • take advice on the most appropriate business form
  • use a professional to form a company or limited liability partnership
  • check any legal requirements
  • keep records to comply with statutory requirements


  • form a company unnecessarily without considering other options
  • enter into business with partners without a clear agreement
  • forget to inform the tax and local authorities