What is a micro-business?
As with small and medium-sized businesses (SMEs), there is no single definition of what a micro-business is, and different parts of the government use different definitions and terminologies.
While the Office for National Statistics (ONS), which publishes yearly figures on the number and size of businesses in the UK, does not expressly refer to micro-businesses, its figures have been used in governmental reports about micro-businesses. In these reports, micro-businesses are referred to as businesses with between 0 and 9 employees.
Companies House has simplified account filing requirements for micro-businesses, which are referred to as ‘micro entities’. Under this definition, a micro-entity is any business that meets two of the following criteria:
a turnover of £632,000 or less
£316,000 or less on its balance sheet
10 employees or less
It is therefore likely that any small business employing less than 10 employees may be classified as a micro-business.
What business structure should I choose for my micro-business?
There are several factors that could determine your choice of business structure. These include the complexity of setting up the business, the amount of paperwork involved, tax liability, personal responsibilities and liability if the business fails or makes a loss, and how to make a profit. In the UK, the four most common ways to set up in business are:
as a sole trader - this is where you operate your business as an individual and will be personally liable for paying the bills and responsible if the business makes a loss.
in partnership - this is where two or more partners carry out a business with a view to making a profit. The partners are responsible for running the business, share the partnership’s profits between themselves and are personally responsible for paying the bills and any partnership losses.
as a private limited company (LTD) - the company’s finances are separated from your personal finances and the company is a legal entity in its own right. The liability of the company owners' (also known as ‘shareholders’ or ‘members’) is limited to the amount which they have invested, plus any unpaid-for shares.
as a limited liability partnership (LLP) - the LLP is a separate legal entity from its owners (also known as ‘members’). LLP partners aren’t personally liable for debts the business can’t pay, instead their liability is limited to the amount of money they invest in the business.
Deciding which business structure to choose for a micro-business will depend on specific needs and individual circumstances.
For more information on the different types of business and the advantages of each, read Choosing your business structure. Read Startups for more information on starting your own business. Remember that you can always Ask a lawyer if you have any questions.
What documents should I have in place?
Micro-businesses generally have the same obligations and need to comply with the same laws as other businesses.
While the specific document needed will depend on the individual circumstances of each micro-business (eg what good and/or services it provides), micro-businesses should generally consider having in place:
Terms and conditions - terms and conditions make everyone aware of their rights and obligations and allow the parties to focus their energy on agreeing the specifics of a particular order, by setting out terms relating to orders (eg payment, delivery, returns and refunds). Standard terms will apply to every order/transaction a business undertakes. Read Terms and conditions and How to choose the right terms and conditions for more information.
If your micro-business employs staff, you may need to comply with certain employment law obligations (eg businesses with 5 or more employees are required to have a written Health and safety policy). For more information, read HR policies and procedures and our HR policies checklist.