Business structure

A quick comparison of the different trading structures available, with more detail to help you decide which option will be best for you.

  • Sole Trader
  • Limited Company
  • Partnership

Compare different trading structures

Once you’ve made up your mind that you are going to start in business you need to decide what form the business will take. Each of the following options has its own merits and limitations.

TYPE OF STRUCTURE

BUSINESS METHOD

RESPONSIBILITIES

ACCOUNTS

TAX STATUS

SOLE TRADER - Probably the simplest solution if you want to start up on your own. There’s less paperwork and fewer formalities than partnerships & limited companies

You run the business and make the decisions.

You are individually responsible for any debts and obligations that the business owes.

You don’t have to produce a balance sheet or have accounts audited.

You need to let the tax authorities know that you are starting in business as your tax status will change to self employed.

PARTNERSHIP - Know as much as possible about your prospective business partner to help avoid any unwelcome surprises later on

You will be liable as an individual for any debts or obligations incurred on behalf of the firm by your partner(s) even if you did not agree or know what transaction they had entered into.

It makes sense to draw up a partnership agreement which formally documents the arrangements between the partners - your solicitor can do this for you.

You don’t need to produce accounts, but it would be wise to do so.

Each partner will be taxed separately on their share of the drawings from the business.

LIMITED COMPANIES - More complex than setting up as a sole trader or a partnership.

Limited Companies are legal entities in their own right, distinct from the directors who run them. This means that as a Director your liability for debt will be limited to the capital you have invested in the business (except where you have granted personal security/ guarantees for the company’s obligations).

Limited Companies are bound by Companies Act legislation.

The company’s secretary and directors have legal duties eg prepare audited accounts and make an annual return filing these accounts at Companies House within the timescales set down by law.

Directors are classed as employees for income tax purposes