Business Skills



Workbook 1


Business Planning

2021/22 edition

Name: ……………………………………………

Business Skills Programme prepared by:

Training for Employment (Yorkshire) CIC


© Copyright 2015-2021 Training for Employment (Yorkshire) CIC

All rights reserved




3 Introduction to Workbook 1

4 Part 1: The ‘YOU’ in Your Business

5 ‘Reality Check’

6 Personal Development Plan 

7 First Impressions Count! 

9 Executive Summary (1st Draft)

16 Part 2: Business Planning Outline

16 SWOT Analysis

18 Action Planning and Key Tasks

19 Part 3: Initial Finance Requirements

19 Personal Survival Budget

21 Start-up Costs

23 Part 4: Types of business structure

23 Sole trader

24 Partnership

25 Limited Company

27 Social Enterprise

29 Part 5: Legal Requirements

29 Insurances

30 Planning permission

31 Licences

32 Supply of Goods and Services Act 1982

Appendix 1: Business Plan Template (separate document)


Version 10.21

Introduction: ‘Failing to plan….!’ 


Failing to plan is planning to fail! 

Your Business Plan forms a solid foundation on which to build your business. It is a written document that describes a business, its objectives, its strategies, the market it is in and its financial forecasts. It has a number of functions, from securing external funding to measuring success within your business. Ultimately, writing your Business Plan will help ensure that you have thought things through thoroughly and so maximise the chances of your business succeeding rather than failing.

This series of three Business Skills workbooks aims to help you understand the issues around starting a business. They will help you identify both personal and business needs, develop essential business skills and provide you with the knowledge and understanding necessary to develop your Business Plan. This will give you and your business every chance of meeting future challenges and opportunities.

To help you to understand some aspects of writing a Business Plan, we shall be using a case study based on a fictional business – Cyril’s Cycle Centre.

To get you started and to give you an understanding of what you are aiming for, have a look now at the structure of a Business Plan.


PLEASE NOTE – in general, throughout this workbook, you will find instructions on how to complete each exercise, which will follow the narrative. Please use this workbook to write your answers in the spaces given. Your answers will provide the information you need to complete and present a formal, professional Business Plan.

N.B. Whenever the workbook refers to a ‘Product’, it can also be read as a ‘Service’.

Part 1: The ‘YOU’ in Your Business

1a. Do you have the skills to run a business?

Because of  the current economic climate, more and more people are thinking of starting their own business. But, do you have what it takes?

There are various reasons why some people decide to start a business. They may find themselves unemployed. They may be seeking greater job-satisfaction. They may have identified a product or service which people need.

You need to think about your business idea, about the ways in which you can set up your business using your personal strengths, and about the viability of your idea. 

On the next page is a list of questions designed to make think about the skills and attributes you will need to start up and run your business. This list is not exhaustive, and you may think of others which may be more relevant to your idea. Give yourself a score out of five for each question – 1 being the least applicable, 5 being the most. A hundred points are available! 

Exercise 1: ‘Reality Check’ – Skills / Attributes for running a business




(1 to 5)


Do you have a viable business idea?



Do you have 100% commitment to your idea?



Do you have any previous project management experience?



How good are you at planning ahead, i.e. organisational skills?



Do you have cash available to start the business?



Are you able to cover your Personal Survival Budget?



If necessary, would you be able to live on a lower income?



Are you able to survive without a guaranteed income?



How good are you at budgeting?



Do you have any experience of your market?



Do you have the skills you need to run your business?



Would you be prepared to learn new skills to run your business?



Are you prepared to put in the time and effort required?



Do you consider yourself to be decisive?



Do you have clearly set goals and targets?



What level of willpower and self-discipline do you have?



Are you prepared to work long hours?



How good are your ‘people skills’?



Are you comfortable and confident selling to strangers?



Do you have the full support of your family and friends?





Add up your scores. If you have a total of less than 50, you might need to consider whether starting a business is right for you.

1b. Personal Development Plan


Referring back to Exercise 1, the Personal Development Plan is where you would record any action you need to take to gain knowledge and skills which will help you make a success of starting up and running a business.


  • Networking (talking to other small business owners)
  • Research via internet or local library
  • Contact Training for Employment for additional information
  • Attend a training courses (e.g. Bookkeeping, Spreadsheets)
  • Doing some voluntary work within your chosen industry sector
  • Discuss your plan with your Business Mentor


Skill / Area I would like to develop

What do I need to
know or be able to do?

What will I do to achieve this?

By When?
Review Date

  Learn about Tax & Self-Assessment

Learn how to complete an online Tax Self-Assessment

View an HMRC online webinar on Self-Assessment

By end of June

Exercise 2 – Now complete your Personal Development Plan below. An example is given.

1c. First Impressions Count!

Your business image is very important because it will be your customers’ first impression of you and the service you provide. Many businesses pay very little attention to conveying an effective image. 

What image would you like your business to portray? Is it very high quality, with expensive letterheads, plush offices and glossy promotional literature? Or is it a more friendly and informal image, with comfortable chairs and cups of tea for customers?

Both can be appropriate depending on the type of business you want to run. For example, Marks & Spencer and Primark both sell clothes, but to different markets. Think about the image these two companies wish to portray, and the markets they sell to.

The image of your business can be communicated in a number of ways:

  • Product or service: The product or service must be, as a minimum, what your customer expects. It must do the job for which it is intended and must be delivered or provided on time by competent staff, i.e. yourself if you are a Sole Trader.
  • Business premises: Choose premises that are appropriate for your needs, and are likely to remain so for at least two years. Some people choose to work from home to save start-up costs and there is no longer the stigma attached to this concept as there once was. However, most professional trades, i.e. solicitors and corporate accountants, would not convey the right image working from home. At the same time, it would be inappropriate for a mechanic starting up to have expensive city centre premises!
  • Dress code: Uniforms, smart, casual, clean, modern or traditional? The language you use? The way you wear your hair – long, short, tidy? Do you wear jewellery, piercings or have tattoos? Think about the appropriateness of the image you wish to portray. For example, a gardener would wear durable, protective clothing, whereas a beautician would choose to wear a smart tunic.  
  • Business stationery: Try to ensure that all your stationery, letterheads, business cards, envelopes, invoices, quotations, compliments slips, etc. are of the same quality and type of paper. If you have one, use your logo on every piece of stationery. Decide on an appropriate font and use it consistently. Colour can also play an important role. Consider also how your business letters read. They should be well presented without mistakes, and should follow the conventions for letters in terms of layout and clarity. Ensure your communications and business image are consistent. If they are, then it follows your business is consistent, and is not likely to disappear in the next week! This generates confidence in you and your business.
  • Vehicle: Not everyone can afford a new car or van for their business, but some sort of transport is essential for most businesses. Choose a vehicle that is right for the job and have it sign written, if this is appropriate. For example a mobile hairdresser might want to sign-write their vehicle to gain more exposure when the vehicle is parked outside customers’ houses. However, a GP may consider it inappropriate if their vehicle livery advertised their profession. 

Exercise 3: Your Business Image


Look at the following elements in the table below and then decide what sort of image you want to portray for each category (some headings may not apply).



What image do you want to portray?

Product or Service

Business Premises
(if appropriate)

Dress Code

Business Stationery   


Business Vehicle
(if appropriate)



1d. The business Plan template


Please turn to Appendix 1, entitled Business Plan, at the back of this workbook.

There are many business plan templates available, e.g. from your bank or online. The template in this workbook provides for the information required in any business plan, without it being too complicated. It has been designed for a sole trader or a small business. Other templates often require more detailed information, which is not relevant to small business start-ups. 


You may find it easier to start with the template at the back of this workbook and move onto a more detailed one if your business requires it in the future. 


You will note that, after the contents page, the first page of your business plan is the Executive Summary.


1e. Executive Summary – First Draft

This is a one page summary of your Business Plan. Imagine that someone doesn’t have the time to read your whole Business Plan in detail, but needs to get a good feel for your business and plans – this page will help others to understand your business idea. Think Dragon’s Den!


This page will normally be the last page you complete, but it may be useful to create a first draft now, to capture your initial thoughts and ideas. Let’s have a look at Cyril’s Executive Summary (first draft), which should include the following:


  • Idea Summary: A short phrase which describes your legal status (e.g. Sole Trader, which will be explained later), your main business activity and intended place of business.

e.g. A sole trader set up to sell high quality cycles, parts and accessories, and to service cycles of all types, for cycling enthusiasts throughout Yorkshire.

  • Outline Market: A general description of the market for your products and / or services, i.e. who your potential customers will be.

e.g. The main market for services will be cycle enthusiasts, anyone interested in cycling as a sport or for leisure, or cyclists who need repairs or upgrades for their current cycles.

  • Operation Outline: A short phrase to describe how the business will operate, how the product or services will be supplied to customers, and type of premises (if appropriate).
    e.g. The business will be run from high street premises, with a showroom and an on-site workshop. A range of cycles and accessories will be displayed in the showroom. Customers looking for repairs or improvements to their current cycle will be offered a quotation after a thorough inspection. Any agreed work will be arranged at a time to suit the customer and will be carried out on the premises in a timely manner.
  • Financial Summary: A short paragraph outlining the sales you hope to achieve, the prices you are likely to charge, and how you will fund your business.
    e.g. Prices will vary, depending upon the choice of bicycle or the complexity of the repair or upgrade to an existing bicycle. To start the business, £3,000 is being sought from the bank, with the owner also investing £3,000.

Turnover is forecast at £32,000 in the first year, producing a net profit of £21,000 before tax.


N.B. Normally, the Financial Summary  section will be completed after the Financial Planning module has been completed in Workbook 3. Further explanation will be given in that Workbook.

Exercise 3: Executive Summary (First Draft)

Try your hand at completing the first three sections of the Executive Summary, ignoring the Financial Summary for now.


Idea summary:


Outline market:

Operation outline:


Financial summary:

(to be completed later)

1f. Personal / Management Details


Management Details – this is all about you!

The Personal / Management Details section is your opportunity to tell anyone reading your Business Plan how to contact you, and to state your qualifications and experience which are relevant to the business or industry that you are in. This is also useful to reassure yourself that you are the right person running your business and have the skills and experience required. Potential funders and supporters will not want to risk time and money on a business that is beyond the capabilities of the person running it.

The first section consists of contact details (name, address, etc.). Be contactable!


Your Legal Trading Status is likely to be Sole Trader unless you plan to set up a Partnership or a Company Limited by Guarantee (See Part 4 in this workbook for details of types of business structure).

Qualifications are only important as long as they are relevant. Any qualification tells the reader of your Business Plan that you are qualified, capable of hard work and resilient. Specifically, a recent NVQ in the subject of your business would carry more weight than, for example, a decades-old GCSE!

Experience. This does not have to come just from your past employment. For example, someone who has worked as a joiner for 20 years may not believe they have the skills to start a church interior restoration programme. However, if they have spent many years restoring furniture and have worked on period furniture in particular, then those joinery skills are likely to be transferable.

Let’s have a look at Cyril’s Qualifications:

NVQ in Customer Service.   A-Level Maths, English and Business Studies.

Cyril’s Experience:

Twelve years experience working as an employee in the cycle department of a retail store, serving  customers, repairing bikes, giving advice on correct parts, stock control and cashing up.

Cyril’s Personal Profile:

Has enjoyed cycling from an early age and learned cycle maintenance in his teens. This led to a hobby in repairing and maintaining friends’ bicycles. On leaving college, he obtained a job in the cycle department of a large retail store. Works well with others, motivating and encouraging them. Energetic, physically fit and technically competent. Identifies and develops opportunities. Enjoys a challenge, and after 12 years as an employee, has decided to start his own business.

N.B. The profile has been written in the third person, i.e. no ‘I am’ statements. This makes it sound like someone else is describing Cyril in this way, and so the information has more impact.

In the same way as your Executive Summary gives a clear and easy to understand summary of your Business Plan, the Personal / Management Details section gives a clear and easy to understand summary of you, particularly the personal profile. It creates a positive first impression of you and the benefit you will bring to your business. 


Exercise 4: Personal Profile

Think of all the skills, experience and attributes you have that would be valuable in your business. The following list of words and phrases may help:

My Personal Profile



















Exercise 5: Now you can complete your Personal / Management Details below:





Post Code






Website Address



Legal Trading Status

(e.g. Sole Trader, See part 4 later)




(Relevant to Business idea)



(Relevant to Business idea)


Personal Profile:

(written in the ‘third person’. Refer to Exercise 4)


1g. Personal Aims and Objectives

An aim, or objective, is a statement of what you would like to achieve by a particular time and usually starts with the word ‘To’. Goal setting research shows that individuals who set goals and then regularly review them, are much more likely to achieve their aims than those who merely dream.

Examples of Cyril’s Personal and Business Aims and Objectives 

  • ‘To holiday in Cyprus within the next 2 years’
  • ‘To have my mortgage paid off within the next 10 to 15 years, in order for me to invest in a holiday villa in Cyprus.’
  • ‘To learn Greek by attending classes at college over the next two years
  • ‘To expand the business and to take on staff over the next three to five years to enable me to spend more time with my family.’
  • ‘To appoint a manager to oversee the day-to-day running of the business within five years.’

Most people start a business to fulfill at least one personal aim, e.g. to be independent, to have the chance of a better lifestyle or simply to improve their employment prospects.

Aims can be for a specific event, or a broader goal, covering a shorter or longer period of your life. You might want to buy a house, buy a new car, lead an independent life, go out more, be able to help other people, etc. Starting a business may be a way to help you achieve some of your personal aims. 


An important aspect of setting aims or goals is to keep them SMART

S Specific
M Measurable
A Achievable
R Relevant/Realistic
T Timed

Writing your goals so that they fulfill the SMART criteria will greatly increase your likelihood of achieving them. 

Ensuring your goals are SMART will help you be clear about what you want to achieve, by when, and help you to monitor your progress along the way.

Personal aims are what you want to achieve for yourself – your personal/individual aims and any specific goals you may have.  

Personal aims are extra things you might want to achieve, e.g. to develop a practical skill,  to develop team work/social skills, to improve self-confidence or, simply, to learn how to set up and run a business.


Exercise 6: Aims and Objectives

Please complete your Aims and Objectives below. These can include both personal and business elements. Remember to make them ‘SMART’: 

In the next year, I aim to:






In the next three years, I aim to:







The above activity gave you the chance to describe where you would like yourself and your business to be in the future. The next step is to plan your business.

Part 2: Business Outline (Planning)

2a. SWOT ANALYSIS (Strengths, Weaknesses, Opportunities, Threats)

You are now starting to get a clear idea of your areas of strength but we need to address potential areas of weakness and how these may affect your business. Your strengths and weaknesses are areas over which you have some control. There are also some areas over which you have little or no control. These are the opportunities for your business, and the threats to your business. We are now going to review these in a SWOT Analysis.

A SWOT Analysis is a framework that can be used for assessing your personal attributes, current weaknesses, potential markets and your competitors.

S — Strengths
Your internal, positive attributes and selling points. You have some control over these
W — Weaknesses
Your internal negative attributes, you have some control over these as well
O — Opportunities
Uncontrollable external events that you can potentially take advantage of
T — Threats
Uncontrollable external factors that may work against you and require you to take protective action.

Example SWOT Analysis — Cyril’s Cycle Centre




  • 5 years experience  bicycle retail industry
  • Just starting up in business
  • £3,000 capital investment
  • Unfamiliar with modern accounting
  • City & Guilds Certificate in Customer Service
  • Manual book-keeping
  • Only direct bike parts seller in local area
  • Limited IT skills
  • Healthy network of contacts within the industry
  • Weak on marketing skills
  • Enthusiastic off-road cyclist
  • Secretary to local cycling club



  • Chance to write regular articles for local press
  • Cycling has suddenly become popular, so more

  competition is likely

  • Renewed  public interest in cycling with Olympics 
  • If  owner becomes ill, or cannot work, he will

and Tour de France in 2012

  need to pay for temporary staff

  • An opportunity to promote more environmentally
  • Keeping up with new trends in cycling could

friendly transport and leisure activity

  become prohibitively expensive

  • A one-stop shop for all cycling needs
  • Internet sales
  • Online ordering facilities for products not stocked


Exercise 7: SWOT for you and your business

Try completing a SWOT Analysis for you and your business.


SWOT Analysis





2b. Action Planning and Key Tasks

Before you can start your business, there will be certain actions which need to be pre-planned, and key tasks which need to be completed. These are:

  • The actions you will have to take in preparation for the start of your business
  • The tasks you will need to do on a regular basis once your business has started


Example Action Plan Cyril’s Cycle Centre


Action to be taken

Start / Finish Day

Week Beginning

Add in days and week beginning
appropriate to the start of your business






e.g. 05 January

1,500 leaflets to be delivered to key sites where cyclists congregate




4 weeks prior to
business start

Sign write shop front





2 weeks prior to
business start

Fit out shop (e.g. display areas, 





2 weeks prior to
business start

Purchase initial stock


1 week prior to
business start

Stock Control


On a weekly basis


Please go to the next page and record your initial thoughts about the actions you will need to take in preparation for the start of your business and regular tasks to be completed thereafter.

It will be worthwhile revisiting these tasks a number of times over the next few weeks and months. As your understanding and thinking develops, you will probably highlight other tasks you need to carry out.

Action to be taken

Start / Finish Day

Week Beginning

Add in days and week beginning
appropriate to the start of your business






e.g. 05 January










Exercise 8: Action Plan

Please complete the following plan of actions to be taken to start up your business and regular key tasks once you are up and running.


This will form your Start-up Schedule on page 10 of the Business Plan.

Part 3: Initial Finance Requirements


3a. Personal ‘Survival’ Budget


Please complete your Personal ‘Survival’ Budget  (on the next page), which allows you to calculate the minimum profit that your business must make in a year, in order for you to continue your current standard of living.

Exercise 9: Personal ‘Survival’ Budget


This is a calculation to help you understand what you need from your business to live on in your current lifestyle.


(A) ESTIMATED ANNUAL EXPENDITURE (by you and your family) to enable you to survive the next 12 months:




Car (Personal Use)


Council Tax


Building Maintenance


Water Rates






Children’s Education


Property/Personal Insurance


Children Other Expense


Pension/ Investment





Food & Housekeeping


Subscriptions (Clubs, etc)




Personal Entertainment



(Personal Use) 


Costs if living with Parent/Guardian


HP/ Hire Charges

(TV etc) TV Licence




TOTAL    (A)    



(B) ESTIMATED ANNUAL PERSONAL INCOME from family/partner/ investments/pension/other sources – not your business. (This can include means-tested benefits such as Housing Allowance, Council Tax Benefits, Tax Credits, but not JSA):














3a. Start-up Costs

Your start up costs is a summary of the money required to set up your business before you start trading, i.e. the money you will have to spend to enable you to trade. Start up costs can include property required or rent in advance for premises, equipment, tools and machinery, transport, insurances, training costs, marketing and advertising which you may want to do to ‘launch’ your business.

If you do not already have the money to cover these costs, you may have to consider other sources. Before we look at the financial requirements specific to your business, please look at the Funding Sources document in Appendix 2 at the end of this Workbook. 

Investment already made in the business (assets already owned)

Sometimes you may already own, or have purchased, suitable equipment or furniture for your business. If this is the case, creating a record of this can demonstrate to a potential lender how much you have already invested in your business, i.e. how much you are risking, thus reducing their risk. Please refer to page 13 of the Business Plan in Appendix 1 – Equipment


NB you can claim up to six months expenditure costs against your profits. 

How much will you have to spend to start your business?

The Start-up Costs Table (next page). This is a calculation to help you understand how much you will need to invest in your business before you can commence trading. Any costs which have been incurred up to six months prior to starting up, can be set against your profits. Keep all receipts.


Go to the next page and complete Exercise 10 – Business Start-up Costs – which will give you a provisional TOTAL REQUIREMENT to start up.

Exercise 10: Business Start-up Costs




Cost   £







Property Purchase




Rent in advance (usually 1 month)








Installation costs and/or advance payment for Electricity




Installation costs and/or advance payment for Gas




Installation costs and/or advance payment for Water




Insurance – buildings and/or contents




Telephone – landline installation and advance rental




Property refurbishment incl. painting & decorating




Fire and Safety Equipment












Public Liability (£1m – £5m cover, based on annual premium)




Product Liability Insurance




Professional Indemnity Insurance








Stationery and Advertising Costs




Business Cards




Letterheads / Compliments Slips




Advertising Flyers / Posters




Advertisements, e.g. local newspapers








Signwriting, e.g. shop front, vehicle








Transport costs




Road Tax (if due imminently)




Vehicle Insurance (if due imminently) class 1 business use




Vehicle purchase – if required to start up








Professional Services and Licences




Accountant / Bookkeeper (if required)




Solicitor, e.g. for setting up a property leasehold agreement




Food Hygiene Licence




Health and Safety Certificate




CRB / DBS (Criminal record Check)








Initial Stock / Equipment / Furniture required to start 



































Part 4: Types of Business Structure

There are three common types of legal entity for businesses:

  • Sole Trader

  • Partnership

  • Limited Company

There are, in addition, a number of other company structures and styles that fall outside of the scope of this course. They are: Social Enterprises, Company Limited by Guarantee, Co-operatives, Community Interest Companies and Charities. For guidance on the most appropriate choice for you, and where to get additional information on these types of businesses, speak with your Business Mentor.

4a. Sole Trader

Becoming a sole trader is the simplest way to get your new business off the ground.

Once you have told HMRC of your intention to become self employed, you can start trading immediately (subject to any industry-specific licences you might need).

Sole traders can adapt quickly to any changes in their businesses, without having to concern themselves with a great deal of bureaucracy. As a sole trader, you will have complete control over your business and finances.

However, as no distinction is made between your personal and business finances, you will be ultimately liable should anything go wrong. For this reason, it is worth spending time considering which business structure is best for you. Seek professional advice, e.g. from an Accountant, if necessary.

Starting Up as a Sole Trader

Sole traders do not need to notify Companies House, nor deal with any administrative or accounting requirements which are required of limited companies.

As a general rule, you must register with HMRC is you decide to go self-employed once you start working for yourself.

If you’re unsure whether or not you need to register as self-employed, 

If you’re thinking about becoming self-employed, there are two ways to register with HMRC:

  1. a) Register online with HMRC.
  2. b) Fill in Form CWF1 (a PDF file) from the HMRC website.

You should register the moment you start out as a Sole Trader, otherwise you could incur a financial penalty.

Tax and National Insurance

As a sole trader, your business income is counted alongside any other personal income you have for tax purposes, so accounting is relatively straightforward.

You should be aware that will be personally liable for any debts you incur in the running of your business which wouldn’t be the case under the Limited Company route.

Your tax is calculated via the annual self-assessment process. You will have to pay income tax and National Insurance Contributions (NICs) on your profits. Any losses you make can be offset against your other income.

When you fill in your annual self-assessment form, HMRC will calculate any Class 4 NICs you have to pay on your business profits.

Sole traders also have to pay Class 2 NI contributions (currently £2.65 per week: 2012/13 Tax Year). 

You can refer the section about National Insurance on the HMRC website:

4b. Partnership

A partnership is a relatively simple and flexible way for two or more people to own and run a business together and can be a very strong business structure, if it works properly. In a partnership, the partners share the risks, costs and responsibilities of being in business. Each partner is self-employed and takes a share of the profits. Usually, each partner shares in the decision-making. All partners are personally responsible for any debts that the business runs up.

It is not advisable to go into partnership with someone who you do not completely trust or with someone who you feel may not bring something (e.g. skills, experience, resources etc.) to the business. There are no specific rules as to how partners decide their share in the business but it is an important issue to be decided, and have written agreements on, before any business starts or takes on a new partner.

A partnership is legally very similar to a sole trader except that two or more people are in the position of proprietors. All partners are “jointly and severally liable” for the debts of the business, i.e. you can be made to pay off all the business debts of your partner(s). The only exception to this is that partners are not liable for any tax payable by their partners, i.e. you are only liable for your own tax — not your business partner’s.

Partnership Agreement

It is crucial to draw up a written agreement between the partners summarising rights and responsibilities of all partners. A partnership agreement allows you to structure your relationship with your partners in a way that suits your business. Without one, you’ll be ill-equipped to settle conflicts when they arise and minor misunderstandings may erupt into full-blown disputes. 

A partnership agreement should cover:

  • The proportions of capital put into the business.
  • Profit sharing arrangements.
  • How losses will be made good.
  • Roles and responsibilities.
  • Decision-making.
  • Admission of new partners and the retirement of existing partners.
  • Accounting arrangements.
  • Arrangement for dissolving the partnership.

Remember – many business partnerships end in expensive and acrimonious failure, despite the original good intentions.

For further advice, consult an accountant or solicitor.

4c. Limited Company

Limited companies exist in their own right. This means the company’s finances are separate from the personal finances of their owners and can sue and be sued just like a person.

Shareholders may be individuals or other companies. They are not responsible for the company’s debts unless they have given guarantees (of a bank loan, for example). However, they may lose the money they have invested in the company if it fails.

Limited companies require a considerable amount of paperwork and are quite complex. However a Limited Company has several advantages that can make it more suitable if more then one person is involved. In some cases, there may be taxation advantages.

There are three categories of people involved in a Limited Company:



It is normal to have at least two shareholders, but just one person can form a Limited Company. If there is more than one person, consider having a Shareholders’ or Directors’ Agreement.

The shareholders own the company by buying a portion, or share, when the company is created. These shares are also called equity. The money they invest in the company becomes part of the company’s assets that it uses to do business. A private company may normally only issue shares to its members, to staff and their families, and to debenture holders (i.e. people who have loaned the business money for a fixed period, on the agreement that they will receive a fixed return). However, the company may issue more shares to anyone, by private arrangement, to bring more capital into the business. Ultimately the shareholders take the decisions affecting a company vote.

An individual with 51% or more of the shares has the most votes and therefore controls the company. Shareholders may benefit by receiving some of the profit of a company in the form of dividend. They also take the biggest risk if, in the event of a company failing, they are the last people to get any money back.

In a Limited Company the personal liability of the shareholders for the debts of the company is limited to the nominal value of their share holding.

Remember – there are occasions when a Company Director can be personally liable e.g. if a lender has required a personal guarantee for a loan, then the individual may have responsibility for that part of any debt.


The Directors must be over 16 and are employees of the Company. They pay tax and National Insurance under PAYE on their salary, including any benefits in kind.

Directors have a legal responsibility for the running and management of a Company. They may receive a salary and they may also be employees. It is possible for one person to be a shareholder and a Director.


Employees work for a company and receive a salary.

Other characteristics of a Limited Company include:

  • The company pays Corporation Tax on its profits.
  • The term Limited or Ltd. must be included in the company name.
  • From 6th April 2008, private companies have the option as to whether or not they have a company secretary. This means that a company can have a sole director and no secretary.
  • You will need to have a Memorandum of Association that describes the purpose of this company and its powers. There is a standard format that includes the Company name, whether the Company is based in England, Wales or Scotland (there is separate legislation for Northern Ireland). The initial shareholders declaration that they wish to form a company. An objects clause describing what the Company will do. The amount of authorised share capital at registration and the number and value of shares. The fact that the Company has limited liability. An Association clause. 
  • You will also need Articles of Association; these detail the rights of the Shareholders and the powers of the Company’s Directors. Details and guidance can be obtained from Companies House.
  • You must file the Company’s accounts annually with Companies House. Failure to keep the company’s public records up to date can to a large fine, and can lead to the disqualification of directors, i.e. they can no longer be Company Directors or set up another Limited Company within a set number of years.
  • A small Company, one with less than 50 employees, can elect to make a simplified Annual Return and also do not need to have their accounts audited, under the Companies Act (Audit Exemption) Regulations.

  • All records held at Companies House are available for public inspection on payment of a fee.
  • Whilst you can set up a Limited Company yourself, it may be advisable to seek professional advice from an accountant / solicitor (a fee will be charged for this service).


4d. Social Enterprise

‘Social Enterprise’ is not a specific legal structure. It is what a business does with its profits that determine whether it is a social enterprise, rather than its specific legal structure.

A Social Enterprise is a business with primarily social objectives, whose surpluses are reinvested in the business or in the community, rather than being driven by the need to maximize profit for shareholders or owners. In other words, it is a ‘not for profit distribution organisation’.

Social Enterprises are businesses that have social or environmental objectives and they reinvest their surpluses into the business or community. They are organisations interested in overcoming social injustice and contributing to society.

‘Fifteen’ and ‘The Big Issue’ are examples of Social Enterprises.

Social Enterprises need to generate revenue for sustainability, but they also have equally important social and / or environmental aims. The requirement to manage this ‘triple bottom line’ (financial, social and environmental aims) can result in unique challenges for a social enterprise business. However, the ability to bring about positive change to people and communities can be enormously rewarding.

The Social Enterprise movement is diverse, encompassing organisations such as – among others – community enterprises, co-operatives, housing associations, social firms and leisure trusts. These businesses are operating across an incredibly wide range of industries and sectors from health and social care to renewable energy, recycling and fair trade. There is no single legal model for a Social Enterprise. 

Social Enterprises can get help from Social Enterprise groups such as SEYH (Social Enterprise Yorkshire and the Humber)

The main features of a Social Enterprise are:

  • It can be one of many different business types but it must benefit the local community i.e. waste recycling schemes, maintenance apprenticeship schemes, training schools, activity centres.
  • It needs to generate a business surplus that can be re-invested into the business. As a legal entity, it can tender for work to local and regional bodies. The “Social Enterprise” nature of a business may be influential in awarding the contract in certain circumstances.

  • It needs to generate a business surplus that can be re-invested into the business.


Legal structures for Social Enterprises

Social enterprises use a wide variety of legal forms including:

  • Community Interest Company (CIC)

Community Interest Companies (CICs) are usually limited companies, with special additional features, created for the use of people who want to conduct a business or other activity for community benefit, and not purely for private advantage. This is achieved by a “community interest test” and “asset lock”, which ensure that the CIC is established for community purposes and the assets and profits are dedicated to these purposes. Registration of a company as a CIC has to be approved by the Regulator who also has a continuing monitoring and enforcement role. Currently, companies that do not have charitable status find it difficult to ensure that their assets are dedicated to public benefit. There is no simple, clear way of locking assets to a public benefit purpose other than applying for charitable status. For more information on CICs, contact the CIC Regulator –

  • Industrial and Provident Society (IPS)

This is the usual form for co-operatives and community benefit societies, and is democratically controlled by their members in order to ensure their involvement in the decisions of the business.

  • Companies limited by guarantee or shares

These are the most common legal structure for these type of businesses and often considered to be the most flexible, particularly companies limited by shares. While they can ensure they have a social mission written into their Memorandum and Articles of Association, this is not regulated.

  • Group structures and charitable status

Tax is an important consideration for some organisations where the retention of surpluses is essential, particularly if they can’t take on equity. In these cases the tax breaks associated with charitable status can be an important factor. However, it should be remembered that a charity cannot be a Social Enterprise and visa versa.

4e: Business Structure Summary

For most people, the reasons for choosing a particular business structure are a combination of:

  • Individual preference
  • Cost
  • ‘Tradition’, i.e. certain businesses seem to fall more commonly into one of the categories than any of the others
  • A desire to project a particular image
  • Convenience of administration. For example, many personal service businesses will tend to run as ‘Sole Traders’ because it is helpful if the customer is able to identify with an individual, rather than with a company.


Please go to page 11 of the Business Plan and state your proposed legal entity in the ‘Trading Status’ box at the top of the page.


Part 5: Legal Requirements

Depending on the type of business you start, there may be a number of legal requirements that will affect you, such as specific insurance, licences, environmental health legislation etc. When planning the operation of your business, these requirements will need to be taken into account. Below is a basic list of some of the legal requirements you may need to consider.

For more specific information on the legal requirements for your business type, access a copy of the Cobweb Business Opportunity Profile via your local library. In addition to legal requirements, Business Opportunity Profiles also contain information about:


  • Business idea
  • Start up costs
  • Market
  • Training/qualifications
  • Key contacts

5a. Insurances

It is advisable to seek guidance on the insurance needs of your business from an insurance broker, trade association or professional body. Insurance is:

A contract that provides financial compensation for specific losses, in exchange for a regular monthly or annual payment, known as a Premium

There are three main types of insurance:

  • Public Liability: protects against claims by members of the public who might sue for damages to persons or property.
  • Product Liability: anyone who has been harmed by a defective product can recover compensation from the responsible company without having to prove negligence. Product liability covers a business against such claims. Consider the Sale of Goods Act.
  • Professional Indemnity: mainly for those people who provide advice or design work for a fee, such as solicitors or accountants, etc. It provides cover against claims for incorrect or poor advice.

There are a range of other insurances it is useful to consider for your business. These types of insurance include:

  • Motor vehicle insurance: all vehicles must be covered by a minimum of third party insurance It is important to check that current insurance is adequate for business purposes. Normally, standard certificate excludes business use.

  • Employer’s liability insurance: all employees, including volunteers, must be insured whilst in your employment. A current certificate must be prominently displayed at your place of work.

When considering the insurance needs of your business, there are a number of things to take into account:

  • The risks you or your business may be exposed to, i.e. what could happen?

  • The potential impact, i.e. what could happen to you, or your business, if this were to happen?
  • The probability of it happening, i.e. how likely is it to happen?

By considering the three factors above, you can prioritise your insurance needs.

Insurance brokers can give you a quotation for some of the insurances you need and will advise you on your requirements. If you have premises you will need insurance for contents and public liability as well as motor insurance; if you intend to run your business from home you may not be covered by your existing household policies and may need separate insurance for computers etc.

Most mortgage companies and landlords will have a clause in the mortgage and/or rental agreement that forbids you from running a business from home, so make sure this is cleared am approved by your mortgage-company or landlord. If you work from home you may be able to get suitable cover from your household insurer.

In some instances it may be worthwhile taking out a combined policy organised by a commercial broker. This will provide you with a professional consultation to meet all your insurance needs wit a single premium and may result in a financial saving.

5b. Premises and Planning Permission

If you are taking on premises you will need to check with the local council’s Planning Department whether the existing planning permission covers what you are planning to use the premises for. Do not assume that just because the premises have been used for that type of business in the pa: that planning permission is still (or was ever) in place. Some types of business have great difficulty finding premises with the right planning permission, e.g. car mechanics, scrap metal dealers, restaurants and take-aways.

You should also check with the planning department (and your landlord if you are a tenant) if you intend to use your home as your work base.

When you have found the premises you want, get a copy of the lease or rental agreement from your prospective landlord and take it to a solicitor to have it overseen. There may be clauses it the lease that you do not want — such as being responsible for paying for any repairs the landlord deems necessary, or paying for the legal costs for both you and your new landlord. If the premises have been empty for some time, you may be able to negotiate a rent-free or low rent period, or not having to pay legal costs, etc. Make sure that you have the landlord’s written agreement for anything you decide, including agreement for any refurbishments you wish to make to the premises.


Remember –  A lease is a binding legal document that can have serious financial implications. Check the details very carefully and have a Solicitor look over the agreement before you sign it. There will be a small charge for this service, but it may save you a lot of money in the long run.


5c: Registration and Licence Requirements for Different Types of Business

Some business types are required to obtain a licence from the local authority, some of these are shown below, but you should check the current rules with your local authority.


  • Boarding Kennels
  • Pubs and Bars
  • Cinemas
  • Scrap Metal Dealers
  • Massage Services
  • Sex Shops
  • Tattooing, Piercing and Acupuncture
  • Street Traders
  • All Night Cafes
  • Taxis and Minicabs
  • Night Clubs
  • Theatres
  • Pet shops


This list is not exhaustive, so please check whether you need a licence.

There are some specific rules that apply to a number of business sectors and these include food, entertainment & leisure, health and care services and transport. There are many other businesses that require specific licences from various Government departments, agencies and sometimes private organisations. It is beyond the scope of this course to cover them all.

The cost of licences varies and you should find out from the appropriate body before you start the business. If you are discovered trading without the appropriate licence you could be shut down or prosecuted. If your intended business is not listed here, it is worthwhile checking with your local Trading Standards Office, Office of Fair Trading or Environmental Health Department in the council whether you require a licence or need to register the business with them. If they confirm a licence is not required, ensure you get confirmation in writing.


5d. Supply of Goods and Services Act 1982

The Supply of Goods and Services Act is the main legislation for businesses that supply services to consumers. All buyers are entitled to remedies under the act but “consumers” are afforded a greater range of remedies. Consumers are defined as those buying for purposes, not in the capacity of their trade or profession. The Act requires:

  • The service must be carried out with reasonable care and skill
  • The service must be carried out within a reasonable time
  • The supplier must make no more than a reasonable charge for providing the service

If you fail to carry out work with reasonable care, reasonable compensation will usually take the form of a repair or replacement.

Where a contract involves both the supply of goods and the provision of a service, the Act implies the terms equivalent to those implied by the Sale of Goods Act 1979. This means that, under the Act, goods must be:

  • as described,
  • of satisfactory quality – this covers minor and cosmetic defects as well as substantial problems. It also means that products must last a reasonable time
  • fit for purpose – this means both their everyday purpose, and also any specific purpose that you agreed with the customer (for example, if the customer specifically asked for a printer that would be compatible with their computer).

Goods sold must also match any sample you showed to a customer in-store, or any description in a brochure.

Please note that there are different Acts for distance selling and internet sales, and for selling a product in the customer’s own home. Quite often, a cooling-off period – usually 14 days –  is required by law.

If you are going to be involved in any of the above type of sales, please consult the relevant acts. A good website to consult is ‘Which?’