Why is my business structure important?
You wouldn’t build a house on quicksand, why do the same in business? Establishing the correct business structure early on is vital to protect from unnecessary exposure to liabilities and inefficient tax bills.
How do I choose the right legal structure for my business?
The correct structure will be subject to a number of variables, such as whether you employ people, the nature of your business and how you plan to grow. We have created a little guide below to highlight the key points and difference between the most common structures.
|Sole trader||Exclusive owner of the business, entitled to keep all profits but liable for all losses.||– Low cost, easy to set-up.|
– Control retained.
– Very little financial reporting or business administration.
|– Full liability for debt.|
– Personal tax liabilities on profits which can be less efficient.
|Partnership||Between two or more individuals who share management and profits.||– As above, but with more owners.|
– More potential to raise finance.
|– As above but affecting all partners jointly and severally.|
– Governed by very old law unless a Partnership Agreement is created.
– Can be messy to wind up.
|Limited company||Private company whose owners are legally responsible for its debts only to the extent of the amount of capital they invested.||– Less personal financial exposure.|
– Favourable tax regime.
– Business conducted in accordance with constitution (Articles of Association).
|– Administrative and regulatory demands heavier.|
– Annual accounts and financial reports must be placed in public domain.
|Limited liability partnership (LLP)||Some or all partners have limited liabilities, and exhibits elements of partnerships and corporations.||– Flexibility: can be incorporated in members’ agreement.|
– Advantages of limited company and partnership combined.
|– Profit taxed as income.|
– Partners must disclose income.
– LLP must start to trade within a year of registration – or be struck off.
We can provide advice on business structures and help you to set up your business with our startup support service.