2 sole traders - do we need to be a company?

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fizzy

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Bit of an unusual start-up situation that I would really appreciate some help with:

Myself and my boyfriend have both gone freelance making websites in recent months (him first, then me). We are both sole traders and are registered for income tax, but not VAT (below threshold). I am concerned about whether we should (or legally have to be) a company instead, given the nature of our activities:

While we work on most small sites independently, we work together on bigger projects. Once we were both 'freelance', it made much more sense to act as a duo i.e. deal with clients together, take in work together and then whoever is free or most suited to the job takes cares of it and invoices. For example, if I did the site, I would invoice under my own name and tax number. If it was a larger site, and my boyfriend was due some of the money, he would invoice me and I would pay him.

To make dealings with clients simpler, we registered a .ie domain name (and registered a business name in my name to back this up) so that instead of people always having to refer to us as 'john and mary' etc, we have a 'brand' or umbrella name. We have been careful not to issue invoices under this name etc. I know we cannot trade under this name (but technically I believe I could). We have no business cards or anything yet, but would like to have them and include our 'brand' in some way if possible. Quotes have been trickier - they have included the website address sometimes, but always have both our names listed as the suppliers.

So, I realise that to the outside world we may be acting / looking like a company (or partnership), but we are not. Are we breaking any laws? Is there any way we can have an umbrella name but remain sole traders?

I hope that we can remain sole traders for the following reasons but please let me know if they don't make sense!
  • This is a tiny micro business. We are both fully self employed now since the start of 2007. We have lots of work but our turnover is tiny so far. I read a good rule of thumb here once that said you should only set up a company if you make more than you need to live on?
  • Given our current small income, our freelance status is far from set in stone. Even in a year's time, only one of us may still be freelance or we may have PAYE income etc.
  • While we discuss work a lot, and work together on quotes and bigger sites etc, some of our projects are completely solo efforts. We each like doing our own thing, and a partnership 50/50 formal split etc would not really be suitable.
I think that being sole traders is the only option that gives us the flexibility and casual arrangement we need. We can each give our work our best shot and hope to succeed as freelancers, but if one or both of us needs to find a PAYE job tomorrow, or we just think that working together is a bad idea (personal relationship suffering etc) we can get out with the minimum amount of paperwork or hassle for both of us.

However, if we are breaking regulations by trying to have an easy 'umbrella name' we have to find a workaround ASAP.

I am hoping that the wise owls here at AAM may be able to offer some advice on this, but I know it could be very beneficial to pay an expert for a session (would an accountant cover all this, or does some of it need a legal eagle?). If someone could recommend someone good in Dublin (preferably city centre) who would deal with such small cases, I would really appreciate it. I'm just afraid of sticking a pin in the phone book and paying someone who would either not offer solid advice or make a laugh of our tiny businesses!

Apologies for the very long post, but our situation is probably quite odd so I was trying to provide enough info for people to help. Thanks in advance. :)
 
Currently you are both sole traders operating under your individual names.

What you can do is:

One of you becomes a sole trader operating under the business name.
So nothing will change except you will be able to use the business name rather than your individual name.

The other person just carries on the same and then invoices the other person for work done.

All very simple.

One problem is that one of you will not have access to the business name, if you develop a strong brand, legally only one of you is entitled to use it, while the other person is a sub contractor.
So if you split, it is a problem that only one of you is entitled to the brand and the goodwill generated.
 
Thanks for replying so soon h,

That does sound pretty simple, but would that not mean that all invoices, quotes and cheques could only be in my name? i.e. would I need to have Mary Byrne t/a brandname everywhere?

Since we do lots of client meetings, quotes etc together, and sometimes my boyfriend then does all of the development work, that could be hard to explain to clients. My boyfriend would not be impressed either - I know I would not be if the situation was reversed...

Do you know if there is anything wrong with our current set up? I am anxious to stay on the right side of the law! :(
 
Your situation appears more akin to a partnership than 2 separate sole traders. As you say, you really need to hire an accountant to explain all the ins and outs to you, and deal with all your queries. Good luck with it.
 
hi ubiquitous,

yes, the more i think about it, i can see that a partnership would be more suitable, although i still fear that could get a bit messy...

would anyone know where i could find a good accountant in dublin city that deals with businesses as miniscule as ours??
 
fizzy said:
yes, the more i think about it, i can see that a partnership would be more suitable, although i still fear that could get a bit messy...
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From reading your original post, I'd say it's pretty messy at the moment!

I would have thought it would be a lot simpler if you were either a partnership or a limited company: it would make a lot of things simpler (e.g. both being able to trade under the same name, no messing with cross invoicing etc.).

You really need to get an acountant to advise: all it should take is one or two sessions to go through things and to get you up and running.

Best place to look is by personal recommendation from someone with a similar business/location to your own.
 
You're probably right about that Ang! I probably made it sound a bit messier than it is. Because we are so small at the moment, and don't know how permanent our circumstances are, it is handy that we just each look after our own little bit.

I don't know anyone else with such a small business in *any* line of work. I know a couple of sole trader web guys, but they do their own accounts. So any recommendations would be much appreciated.
 
Speak to an accountant. Not registering for VAT might not actually be advantageous -depending on whether your customer base is largely business people or not.
 
fizzy said:
I don't know anyone else with such a small business in *any* line of work. I know a couple of sole trader web guys, but they do their own accounts. So any recommendations would be much appreciated.
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Speak to the guys you know. Most small outfits/sole traders "do their own accounts", but most will have consulted an accountant at some stage, and probably do so at least once a year.

All you need is a couple of hours with an accountant to go through your circumstances, make recommendations and if required set you up with some sort of simple acounting system, and you can take it from there.
 
Fizzy,

I'd be happy to introduce you to a chap who would be happy to talk to you without obligation.

In the meantime, think about developing your own knowledge...through the likes of the County Enterprise Boards and courses alluded to elsewhere on here.

Send me an email if you want to progress this.
 
Thanks for the replies and helpful advice guys. I know I must seem fairly ignorant and disorganised!

I have started looking into the courses etc offered by business support places. I know that there is lots of help out there for start ups which is great. It's just that I have an awful lot on my plate at the moment, so I have not had time to take a step back.

It's actually because I have a background in figures and am anxious to do everything properly that I am concerned about our current arrangements. As a sole trader, I have been keeping complete double entry accounts to date using accounting software.

Being sole traders was the most suitable way for us to get going, because we did not even start together and worked very little together until recently. But I can see that if we are going to be far more of a duo going forward, it would make a lot more sense to have a partnership or company.

I will try to get some accountant recommendations and will report back if all goes well so that other teeny tiny businesses will know where to go! :)

Thanks again
 
I don't think there is anything wrong with both of you registering yourselves as sole traders and registering the same registered business name i.e. Acme Designs Ltd. You would then need to invoice each other as required. All legal and above board.
 
jeepers firefox, you're a genius! :) why didn't i think of that? i know we would be better off formalising our partnership once we see a definite future, but that would be something simple we could do right now.

i knew the cro did not check uniqueness of registered business names, but i thought i better not duplicate someone else's. so i guess i never thought of duplicating my one. that's great. thanks firefox and ged :) :)
 
firefox said:
... registering the same registered business name i.e. Acme Designs Ltd. You would then need to invoice each other as required. All legal and above board.
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fizzy said:
i knew the cro did not check uniqueness of registered business names, but i thought i better not duplicate someone else's. so i guess i never thought of duplicating my one. that's great. thanks firefox and ged :) :)
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Are you sure? Some people might interpret such a strategy as (1) an attempt to mislead customers and the public; and/or (2) an abuse of business name registration procedures; and/or (3) at the very least, evidence of a "smartass" approach to business that in the long run might not do much good for your own and your partner's reputation in business.

For a start, neither Revenue nor your bank(s) are likely to be highly impressed with the idea, to say the least.
 
For a start, neither Revenue nor your bank(s) are likely to be highly impressed with the idea, to say the least.
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Why not? I didn't think the bank and or revenue had any say in what people call their businesses, nor to be frank do they care.

Some people might interpret such a strategy as (1) an attempt to mislead customers and the public;
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Why would people think they are mis-leading the public. Its not like they are attempting to poach business from each other. They are in fact working in conjunction with each other.

(2) an abuse of business name registration procedures
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One point that is consistantly stressed through CRO is that if you want protection or exclusivity on your business name...Go Limited. Other than that, it is made quite clear that if you register a business name as a sole trader with CRO, there is absolutely nothing stopping anyone else registering that business name as a sole trader as well. Its all legal and above board.
I deal quite a lot with CRO and i have seen some same sole trader business names registered by 5 or 6 different people. Its never been a problem.

(3) at the very least, evidence of a "smartass" approach to business that in the long run might not do much good for your own and your partner's reputation in business
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Not a smartass approach in my opinion, More of a smart approach. What would you suggest they do otherwise? Set up a Limited company? I don't think so. They are not at the stage of needing a limited company yet and i think they are very wise to stay as sole traders for the time being as too many people do not take having a limited company seriously enough these days.
 
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GED said:
Why not? I didn't think the bank and or revenue had any say in what people call their businesses, nor to be frank do they care.
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The revenue don't care what people call their businesses, but if two people are sharing the same business and both registered as sole traders its a different story.

It could be a way of keeping under the vat threshold,
Off setting taxable gains between the two traders,

Banks could think it could be a way of inflating income for one of the business to get a large loan.
 
GED said:
Why not? I didn't think the bank and or revenue had any say in what people call their businesses, nor to be frank do they care.
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Bank(s) will worry about the risk of funds belonging to one business being lodged inadvertently or otherwise to the other's bank account.

Revenue will also have concerns. Where Revenue discover unusual or "exotic" invoicing arrangements (for example, two businesses with the same name cross-invoicing each other on a regular basis) they normally treat these cases with extreme caution. At the very least you could expect comprehensive Revenue Audits of both businesses.

GED said:
Why would people think they are mis-leading the public. Its not like they are attempting to poach business from each other. They are in fact working in conjunction with each other.
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Anyone who tries to enter into a contract with either business, or tries to sue either business for that matter, might disagree.

GED said:
What would you suggest they do otherwise? Set up a Limited company? I don't think so.
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Did you bother reading the previous posts on this thread? I suggested that their situation indicates the existence of a partnership and recommended they get proper professional advice to formalise their business arrangements.
 
but if two people are sharing the same business and both registered as sole traders its a different story.
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Thats a good point about Revenue hhhhhhhhhh. Didn't think of that.

Thats where the problem seems to lie is that they are not sharing the same business full time. For most projects they would be trading independently but for the bigger projects they would work together. Possible they could invoice individually for their own individual projects and have a partnership in place for the projects they work on together. I can't seem to think of any other way around it.
 
yeah, i can see how revenue might think we were up to something (even though we are completely above board about everything) and it could all be very messy.

as i said, we are going to take some time to look at our figures, decide what we would be comfortable getting into and then get expert advice.

many thanks again for everyone's help and input - much appreciated!
 
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