Business structures

The different business structures available in the UK

Sole Trader

Easy to set up and administer, operating as a sole trader is common for new businesses. Registration at Companies House is not required although you should notify HMRC that you have started a business – and keep proper records!

Although the ease of setting up as a sole trader is appealing, you are not creating a legal entity. This means that there is a high level of personal risk as you will be liable for any debts or legal actions. Any income you receive will be added to your personal income so you may have higher tax bills as a sole trader than you would by using a different business structure.

You may also find that your target market is restricted – this is because many large businesses will only accept limited companies as suppliers.

Partnership

In a partnership, you and your partner (or partners) personally share responsibility for your business. This includes:

  • any losses your business makes
  • bills for things you buy for your business, like stock or equipment

Partners share the business’s profits, and each partner pays tax on their share. A partner has to be a legal person so you could have a partnership with a Limited Company.

Partnerships are easy to set up. You just need to:

  • choose a name
  • choose a ‘nominated partner’
  • Register the partnership with HMRC.

One partner will be nominated partner and is responsible for managing the partnership’s tax returns and keeping business records.

When setting up a partnership, you should have a written partnership agreement

Private Limited Company (Ltd)

A private limited company is a legal entity in its own right and is separate from those who own it in the eyes of the law. This limits the amount of personal risk you are taking as you just risk losing any money you invest into the business.

There are also potential tax advantages and it is relatively simple to set up and operate.

There are only 4 requirements:

·       You must appoint at least one director (aged 16+)

·       You must have a registered office in the UK (this can be your home address but check that you declare it on your buildings and contents insurance)

·       The company name must meet Government regulations and

·       You must issue at least one share when you set the company up.

If you search for how to set up a limited company, you will find plenty of companies who will help (and charge), but our advice is to go to https://www.gov.uk/limited-company-formation.

When you set up a limited company, it is important to have a shareholder agreement.

Public Limited Company (PLC)

A PLC is basically the same as a private limited company, but you can trade shares in public markets which can be an effective way to raise capital.

The set up and operating costs of running a PLC are much higher than for a private limited company so this structure is only worth considering for much larger businesses. A minimum of £50,000 worth of shares must be issued before a company can be registered as a PLC.  It is also a legal requirement for at least two directors to be appointed. Consult an accountant or solicitor if you want to go down this route!

Limited Liability Partnership (LLP)

This is similar way to a traditional partnership, but with the benefit of limited liability. Solicitors and accountants often use this structure. It uses partners rather than directors. A minimum of two partners must be appointed as the ‘designated’ members and it is these partners who are responsible for the day to day running of an LLP.

The key difference between an LLP and a PLC or LTD is that the LLP is not liable for corporation tax. The members of the LLP complete a yearly self-assessment and pay tax on their personal income. 

The filing requirements for an LLP are very similar to those of an LTD company. Accounts must be filed at Companies House and HMRC each year.

Guarantee Company (Non Profit)

Limited by Guarantee companies are, quite simply, not for profit companies. Any profits generated are reinvested into the company and are used to achieve the objectives of the company which are often charitable in nature. The members of this type of company are classed as decision makers rather than owners of the company.