Types of business
Many childcare settings in Leicestershire are owned and run by sole traders, partnerships, voluntary management committees or charities (social enterprises). These are all legally and financially liable for the decisions they make and the consequences of such decisions.
It is possible to limit the liability and protect personal interests by changing the legal status of a business to a limited company. This is called incorporation.
A guide to incorporation
What does incorporation mean?
This means that the business has its own legal identity and is separate from the individuals who own and run it. Any contract, agreement or lease is made with the company rather than the individual.
What are the benefits of incorporation?
By incorporating you limit your personal liability both financially and legally. This means that your personal assets are not put at risk if the business has problems. Please note that limited liability does not protect you in the event of misconduct, negligence or dishonesty.
How do I know if I should incorporate?
You should base your decision to incorporate on the level of risk that you are exposed to. Reasons to incorporate might include:
- responsibility for premises whether leased or owned
- having employees
- raising finance
- entering into contracts
- risk (childcare is high risk because it involves young children).
How do I know which business model I should choose?
There are lots of business models to choose from. The National Council for Voluntary Organisations (NCVO), in collaboration with Bates Wells & Braithwaite, charity law experts, has developed a free online reference and decision tool to help you decide the most suitable legal structure for your business.
Will I need legal advice?
Yes. The Get Legal website is comprehensive but as no two businesses are the same, it is essential that you get legal advice before you make a final decision on your business model.
Private organisations – where to get legal advice
To become incorporated, private organisations need to register with Companies House.
The Law Society has a list of solicitor firms in England and Wales who specialise in advising small businesses. They will be able to give you a list of solicitors in your area that can prepare your documents for registration. This will include giving you advice on what you need to include in your governing document (Articles of Association), which are the rules that the company will operate under.
The first consultation is free but it is important at this stage to clarify what your legal costs are likely to be. Depending on what you need, the costs can range from £250 to £1,500. If you fill in the registration forms yourself you will help to keep your legal costs down.
Voluntary organisations – where to get legal advice
Voluntary or community organisations that want to be incorporated and be a charity need to register with Companies House and the Charity Commission.
The Get Legal website has template registration forms and advice on how to fill them in. The National Council for Voluntary Organisations (NCVO) can give you a list of solicitors who will work for free.
The Pre-school Learning Alliance has a pack called A Guide to Incorporation you can buy for a nominal fee. It includes all the forms and documents you need and has examples of Articles of Association. They also have a contracts manager who can help you through the process. This is only available to Pre-school Learning Alliance members.
How long will it take?
Companies House usually processes applications in eight to 10 days from when they get your application. There is a small charge for this.
The Charity Commission will also usually process your application within 10 days if all the paperwork is correct. There is no fee for this. You can call them directly for forms or go online.
What other paperwork will be involved?
An incorporated company is different to a private individual or partnership, so you also need to think about the following:
- changing bank accounts
- informing or re-registering with Ofsted
- updating insurances
- giving staff new contracts of employment
- changing tenancy agreements or leases
- replacing any outside signs, web pages, headed paper and so on
- re-registering with the Early Years Free Entitlement Team.
Our childcare business advisers are happy to meet with you or you can contact them for advice by phone on 0116 305 8048 / 8039 or email email@example.com.