Taking Care of Business // Legal business structures

You must choose a structure for your business which will define your legal responsibilities, like:

• the paperwork you must fill in to get started
• the taxes you’ll have to manage and pay
• how you can personally take the profit your business makes
• your personal responsibilities if your business makes a loss

You can change your business structure after you’ve started up if you find a new structure suits you better.

Types of business

The main types are:

• sole trader
• limited company
• business partnership

Sole trader

As a sole trader, you run your own business as an individual. You can keep all your business’s profits after you’ve paid tax on them.

You can employ staff. ‘Sole trader’ means you’re responsible for the business, not that you have to work alone.

You’re personally responsible for any losses your business makes.

Limited company

A limited company is an organisation that you can set up to run your business - it’s responsible in its own right for everything it does and its finances are separate to your personal finances.

Any profit it makes is owned by the company, after it pays Corporation Tax. The company can then share its profits.

Ownership

Every limited company has ‘members’ - the people or organisations who own shares in the company.

Directors are responsible for running the company. Directors often own shares, but they don’t have to.

'Ordinary' business partnership

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

You can share all your business’s profits between the partners. Each partner pays tax on their share of the profits.

You’re personally responsible for your share of:

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

Limited partnerships

The liability for debts that can’t be paid in a limited partnership is split among partners.

Partners’ responsibilities differ as:

‘general’ partners can be personally liable for all the partnerships’ debts

‘limited’ partners are only liable up to the amount they initially invest in the business

General partners are also responsible for managing the business.

Limited liability partnerships (LLPs)

The partners in an LLP aren’t personally liable for debts the business can’t pay - their liability is limited to the amount of money they invest in the business.

Partners’ responsibilities and share of the profits are set out in an LLPagreement. ‘Designated members’ have extra responsibilities.

Co-operative

Owned and run by and for their members, whether they are customers, employees or residents. As well as giving members an equal say and share of the profits, co-operatives act together to build a better world.

https://www.gov.uk/business-legal-structures/overview