What type of business structure is best for you?

Five key business structures in the UK:

There are five business structures that you'll be able to select from as you begin forming your company. We'll dive into each one of them in-depth below, but consider this your primer and introduction to the basics of each structure.

Entrepreneurs in the UK can begin a business as a:‍

Sole trader

• Simple to operate
• Unlimited liability
• Minimal filing duties
• Registration at Companies House not required

Partnership

• High liability
• Two or more partners
• Taxes are paid separately by each partner on their share of profits

Limited liability partnership

• Profit-driven
• Requires at least two members
• Limited liability

Private limited company

• Limited liability
• Simple to operate
• Potential tax advantages
• Company Registration at Companies House required

Guarantee company (non-profit)

• Profits are reinvested in the company
• No "owners"—only decision-makers
• Tax exemptions

Sole Trader

Operating as a sole trader is one of the most common ways to begin a business. It's the simplest business structure, the simplest to begin and operate, and the simplest to make changes to later on. Once a business owner establishes themselves as a sole trader, they and their business are seen (legally) as a single entity.

That means a variety of things for business owners.

On the plus side, you'll have the freedom to flex your creative and authoritative muscles and make every decision imaginable for your company. Maximum control over your own business is enticing to most—you get to do all of the decision-making and keep all of the profits that come from your business.

If you elect to operate as a sole trader, you'll also run into a handful of disadvantages. You can hardly claim all of the profits from your business, for example, without being prepared to be held accountable for any of its losses. A great deal of personal risk goes into registering as a sole trader; this isn't a factor which should be overlooked.

Liability

Sole traders face immense liability when it comes to their businesses. They're entirely responsible for running their businesses and ensuring that every step they take is well within the legal requirements set out by the government.

If you register as a sole trader, you'll also be made personally responsible for any debts that your business incurs. In the event that a consumer takes legal action against your business, you'll be held accountable for that, too. As such, a comprehensive insurance policy is recommended for sole traders.

The Ideal Candidates

The ideal candidate for sole tradership likely has a small shop or business with little risk of liability.

If you're a little short on cash or other resources to help kickstart your business's beginnings, getting started as a sole trader may be one of your only opportunities to break into the market and start making a profit—given the ease and low costs of setting up.

Private Limited Company

Private limited companies are their own separate legal entities. That means that, as far as the law is concerned, your business is entirely independent from you.

Private limited companies are the most popular business structure in the UK.

Most business owners are drawn to the limited liability associated with formation. There are also a number of tax advantages that come along with operating as a limited company—you're likely to pay less in taxes than sole traders, you can defer income from a high-tax rate year to a lower-tax rate one, etc.

The Ideal Candidates

Those who are looking to be saddled with very limited liability may be well-served by this structure. Your liability (as well as the liability of any shareholders) will be limited only to investments made and unpaid shares owned.

If you don't want your personal assets entangled in your business's health, this is an excellent way to avoid that issue. Your personal assets will never be exposed in the event your business comes to an end. But there's an exception—if you've signed a personal guarantee, this will override the limited liability protection that the structure provides during the debt recovery process.