How to register your business: the step by step guide
Without further ado, here is the in-depth, step-by-step guide providing comprehensive instructions on registering your business from start to finish.
1. Choose your business structure: how do you want to run your dropshipping business?
When structuring your dropshipping business, you have choices such as operating as a sole trader, establishing a limited company, or forming a partnership. There are implications (good and bad) for each one:
Operating as a sole trader offers simplicity in setting up and managing your dropshipping business. You have complete control over decision-making and profits. However, the key downside is that you are personally liable for any debts or legal issues the business encounters. This means your personal assets could be at risk if the business faces financial trouble.
Establishing a limited company provides a distinct legal separation between you and your business. This structure limits your personal liability, safeguarding your personal assets if the business faces legal or financial problems. However, a limited company involves more administrative duties, such as maintaining proper records, submitting annual accounts, and adhering to company laws and regulations.
In a partnership, two or more individuals share the responsibility and decision-making in the dropshipping business. This structure allows for shared expertise, resources, and workload distribution.
However, similar to a sole trader, partners in a partnership are jointly liable for the business’s debts and obligations. This means that each partner’s personal assets could be at risk in the event of legal or financial issues within the business.
Your decision should be tailored to your unique circumstances, encompassing elements such as your overarching goals, the degree of control you wish to maintain over the business operations, and the level of protection you seek for your personal assets against potential liabilities.
2. Choose a business name
This is the part where you get to choose a business name that resonates with your vision, then register the business name. You can let your imagination run wild here, as long as it’s not only available but also aligns with naming regulations. This is your chance to craft a brand that truly captures the essence of what you’re building. Exciting times lie ahead!
(Also here’s something to consider: research shows small businesses with funny names get more sales.)
3. Register your business
If you chose to run your dropshipping business with a limited company, you’ll want to register your business with Companies House. To do that, you can visit the Companies House website, or fill out the necessary forms online or by post. You’ll need:
- Your chosen business name and registered office address.
- Details of directors and shareholders, including names, addresses, and share allocation.
- A memorandum of association outlining your company’s constitution.
- Articles of association specifying how your company will be run.
4. Pay any associated registration fees
For a sole trader, the process is relatively straightforward and cost-effective. Registering as a sole trader is free, and you need to declare your self-employment to HM Revenue and Customs (HMRC) for taxation purposes. However, you might have expenses related to other aspects of starting your business, like setting up a website or marketing.
If you opt for a limited company, the registration fee typically ranges from around £12 to £40, paid to Companies House, the UK’s registrar of companies.
As for a partnership, the costs can vary based on whether it’s a general partnership or a limited partnership. General partnerships usually do not have a registration fee; however, there might be costs related to legal agreements between partners.
These costs might vary depending on the specific services or professional assistance you opt for during the registration process, such as integrated accounting software.
5. Obtain a Unique Tax Reference (UTR)
After successfully registering your business, the next crucial step is obtaining a Unique Tax Reference (UTR) from HMRC.
This unique identifier is essentially your business’s tax ID and plays a pivotal role in your financial obligations. With the UTR in hand, you gain the ability to file taxes for your business accurately and in compliance with HMRC regulations.
It serves as a distinctive marker that is specific only to you as the name suggests, like your passport or national insurance number, ensuring that your tax affairs are properly recorded and managed correctly.
6. Keep records
Keeping track of your financial moves is crucial, and not as bad as it sounds. Think of it as your business diary; the more detailed, the better. A tidy financial trail makes everyone’s life easier when tax season comes knocking. Here are the things you may want to keep records of:
- Invoices: detailed records of sales transactions, including date, customer details, and items sold.
- Receipts: documentation of business expenses, such as purchases, supplies, or operational costs.
- Bank statements: statements reflecting business transactions, withdrawals, and deposits.
- Expenses: detailed breakdown of all business-related costs, including advertising, utilities, rent, and travel expenses.
- Inventory records: accurate documentation of stock levels, purchases, and sales.
- Contracts and agreements: Copies of contracts, agreements, or any legally binding documents related to business operations.
- Tax-related documents: any correspondence with HMRC, tax returns, and relevant filings.
- Financial statements: Profit and loss statements, balance sheets, and cash flow statements reflecting the business’s financial health.
- Trademarks and other intellectual property: records related to trademarks, including applications, registrations, and any associated paperwork for protecting intellectual property.