When you set up your business, you’ll need to choose a legal structure. This affects how you run the business and pay tax, so it’s essential to choose the right one for you.
There are three structures: the first is sole trader. This is the simplest to set up and use for
record-keeping. As a sole trader, you make all the business decisions and the profits are yours. You’re responsible for any debts.
The second is partnership, but there are different types of partnership to consider. In a business partnership, two or more people run the business and share profits equally. All partners are responsible for any debts.
A limited partnership has general partners and limited partners with different roles and liabilities. At least one general partner must be running the business. And one or more limited partners can contribute capital, such as money or property. A limited liability partnership has at least two registered members. Each can take part in the day-to-day running of the business.
Partnerships can be complex in the way they’re set up and pay tax. If you opt for one of these, please make sure you can meet the requirements.
The third structure is a private limited company. This is legally separate from the people who run it, that includes finances, which are separate from your own. The company can own property and is responsible for its debts. The company is limited either by shares or by guarantee. In the first case it has shareholders who own the shares. It can keep any profits it makes after paying tax. A company limited by guarantee has guarantors and invests profits back into the business.
All private limited companies must comply with strict rules around reporting and paying tax.
If you opt for this set up, please make sure you can meet these requirements.
There’s more information on legal structures and how to choose the right one for your business on GOV.UK.