The structure of your business
Starting a new business
The main ways you can run a business are as an unincorporated business, for example as a sole trader or partnership; or by using a company. There are other possibilities such Limited Liability Partnerships and Community Interest Companies. It is best to take specific professional advice before making a decision.
A company is a separate legal person. You will normally be a director, employee and also a shareholder in your own company. You can take money out of your company as salary or by paying dividends.
If you are a sole trader or partnership, your business is not a separate person from you (in England and Wales). As a sole trader, you are taxed as a self-employed person on the profits. As a partner, you are taxed in a similar way to a self-employed person, but just on your share of the total profits of the partnership.
Some of the advantages and disadvantages of these various ways of trading include:
|Risk||Starting up||Ongoing administration||Flexibility||Tax|
|Sole Trade||Personal liability for business debts||Fairly simple, but Professional help advisable||With care, may be managed on your own. Professional help advisable||Very flexible||Relatively straightforward|
|Partnership||Personal liability for business debts||It is best to have professional help to set up a partnership||You will normally need professional help||Quite flexible||Relatively straightforward|
|Limited Company||Offers some protection from personal liability||Quite complex – you will need professional help||Complex – you will normally need professional help||Less flexible||Complex|
There are other forms of business structure including limited liability partnerships and social enterprises. You can find out more about these on the Government’s services and information website at https://www.gov.uk/browse/business/setting-up.