For the past year, Kent based brothers Thomas and Steven Parks have been manufacturing and selling a range of Mexican style cooking sauces. The business is called MexxaMixx and is currently being run out of Thomas’ home.
Due to the growth and success of the business, Thomas and Steven have decided to set up a company. To ensure they have the right business structure they have come to us, at Thomson Snell & Passmore, for advice.
We advised Thomas and Steven that there are two types of business structure that would apply to them and their business. The first is a partnership and the second is a private limited company.
At the moment Thomas and Steven are in a general partnership. These are formed automatically when two or more individuals enter into business together with a view to making a profit. As the arrangement currently stands Thomas and Steven are jointly and severally liable for the business’ debts. To protect themselves against creditors, they may want to enter into a limited liability partnership (LLP). Members of an LLP have limited liability in that, generally, they do not need to meet the LLP’s liabilities.
The alternatives to a partnership would either be a private company limited by shares or a private company limited by guarantee. The difference between these two is:
- A private company limited by shares limits the liability of the shareholders to the amount they have agreed to pay for their shares in the company.
- Members of a company limited by guarantee undertake to contribute a financial sum in the event of the company being wound up.
Thomas and Steven explained to us that they would like their wives, Tamara and Sofia, to own part of the new company. In conjunction with the brothers’ accountant, who was providing the necessary tax advice, we advised Thomas and Steven that they should incorporate MexxaMixx as a private company limited by shares. This will make it easy to identify the percentage of ownership held by each of the brothers and their wives and will limit their potential exposure to liability.
Thomas and Steven instructed us to incorporate MexxaMixx Limited, a company limited by shares.
Article first published on 9th January 2015 in the Kent & Sussex Courier.