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Business Structures
There are several structures to choose from
depending on your situation. The model you decide on will determine
whether you are regarded as self-employed or as an employee of the
business.
Sole Trader
This is the simplest structure for any business as
it is subject to the least number of regulations and obligations.
Keeping records and accounts is relatively straightforward and all the
profits made are yours, after tax. However, raising finance is more
difficult as you will need to utilise your own personal assets as
security and you are individually liable for any debts that accumulate.
Partnership
In a partnership the burden of ownership is shared
between two or more people and is a relatively simple and flexible way
to run a business. The business does not have a separate legal entity
meaning that should a partner leave, die or go bankrupt the business
will not cease but the partnership will have to be dissolved and
re-built. Each partner is considered to be self-employed and will be
entitled to a share of the profits. However, as with the sole trader,
personal assets must be used to raise finance and any debts are the
responsibility of the partners.
In England, Wales and Northern Ireland there is
joint liability meaning that any burdens are shared equally between the
partners In Scotland the liability is joint and several meaning that
the debts are either shared or one partner can be held responsible for
the entire sum.
Limited Liability Company
Limited companies have a separate legal persona
from their members. This means they can raise finance in their own
right and any debts belong to the company, reducing any personal
burdens. The private limited company is the most common form of this
business structure and will have one or more private
shareholders.
The company must be incorporated with Companies
House and there is a great deal of administration required to comply
with the obligations imposed by statute. Directors are treated as
employees of the company and profits are normally distributed as
dividends.
Limited Liability Partnership
An LLP is similar to any partnership except that
the liability of the partners is limited to the amount of money they
have invested in the business and to any personal guarantees they have
granted to raise finance. At least two partners must be
‘designated members’, meaning they carry some extra
statutory responsibilities in respect of the administration that is
required.
As with a limited company, the LLP must be
registered at Companies House increasing the amount of paperwork that
is required. The partners remain self-employed but there is an element
of corporation tax payable depending on profit.
Another form of the limited liability company is
one which is limited by guarantee rather than shares. These businesses
are usually used for social enterprises whose objectives are
principally community based.
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