Every business structure has its own drawbacks and benefits regarding issues such as control, perception, liability, cost and taxation. This guide looks at the most common business structures; the most suitable one for you will depend on your current situation and future plans.
The four main options
01A sole trade is the simplest and lowest cost way to operate. You can establish your business without any legal formality. You will be personally liable for the debts of the business.
02A partnership is formed when two or more sole traders agree to work together. Although there is no legal formality to setting up a partnership, it is advisable to have a partnership agreement in place. Partnerships enable resources to be pooled, often saving costs and accelerating business growth. Partners divide the profits and then pay tax on their share in the same way as sole traders. Partners are jointly liable for the debts of the partnership.
03A limited company is a separate legal entity from the individuals who own it. There are more regulations to meet, and the costs of running a company are therefore higher. Typically, you pay less tax and national insurance as an owner of a company than as a sole trader or partner. As an owner you are not liable for any company debts. However, in practice, banks usually require security on their loans, such as on the homes of the company's owners.
04A Limited Liability Partnership (LLP) is a relatively new structure. LLPs are taxed in the same way as partnerships but partners have limited liability to the partnership's debts. The legal and administrative obligations are more onerous than for a simple partnership, being similar to those for a limited company. As such, LLPs are more suitable for larger partnerships.
If you wish to operate through a limited company, see our guide on forming a company for more details.
Helping you decide
Each structure brings additional considerations, such as how assets (e.g. cars and property) should be owned. We would be happy to discuss which form is most suitable for your business.
Please contact us to find out more.
