Business structures and trading status
When you startup your own small business there are four main choices on how you structure it. This is generally known as your 'trading status'. The main choices for your business structure are:
Setting up in business as a Sole Trader
The simplest business structure is a sole trader. The advantages of setting up a small business as a sole trader are that it takes almost no time, effort or money, and the on-going administration is much less than for the other possible business structures. The main disadvantage of structuring your business as a sole trader is that you are entirely personally responsible for any debts the business incurs.
Setting up a Private Limited Company
The most complicated business structure to administer is a private limited company. The advantages are that your personal liability is usually limited to the amount of equity you put into the company. Limited companies are relatively easy and cheap to set up and if you use one of the many company formation companies, such as Quick Formations, they will have off-the-shelf packages that are suitable for most small businesses. The main disadvantage of operating as a limited company is that the administration involved in running a limited company can be complex and costly. You must file an annual return and company accounts in a specific format so you are more than likely to need the services of an accountant. Also, any changes must be documented on the right form, which is not always easy to locate or easy to understand. You would be wise to consider another option unless you are specifically advised that a limited company structure is the best for your circumstances.
Setting up a Partnership
There are two forms of partnership arrangement:
- A partnership, which works in a similar way to a sole trader but with 2 or more people equally responsible
- A limited liability partnership (LLP) which works a bit like a limited company with 2 people holding an equal number of shares.
Setting up a Community Interest Company
If you’re setting up a company for community benefit and not to make a private profit you can set up a community interest company (CIC). However there are strict rules for the set up and operation of these to ensure the assets continue to be used appropriately. See our article on How to set up and run a limited company for more information on the rules for CIC business structures.
Choosing the best business structure for your small business
Generally speaking, if you’re providing goods or services that someone can sue you over if things go wrong you should consider a limited company business structure. A limited company may also have more credibility with potential investors, customers and suppliers. Note that you do not have to be a limited company to employ staff, and being a limited company has nothing to do with whether or not you need to register for VAT.
See our article on How to set up and run a Ltd company for the advantages and disadvantages of being a limited company.
You should take advice from a qualified accountant before deciding which is the best option for your business.
The following tax advice books are available from the Now Let's Get Started bookshop, delivered to you in association with Taxcafe:
Business structures and trading status
When you startup your own small business there are four main choices on how you structure it. This is generally known as your 'trading status'. The main choices for your business structure are:
Setting up in business as a Sole Trader
The simplest business structure is a sole trader. The advantages of setting up a small business as a sole trader are that it takes almost no time, effort or money, and the on-going administration is much less than for the other possible business structures. The main disadvantage of structuring your business as a sole trader is that you are entirely personally responsible for any debts the business incurs.
Setting up a Private Limited Company
The most complicated business structure to administer is a private limited company. The advantages are that your personal liability is usually limited to the amount of equity you put into the company. Limited companies are relatively easy and cheap to set up and if you use one of the many company formation companies, such as Quick Formations, they will have off-the-shelf packages that are suitable for most small businesses. The main disadvantage of operating as a limited company is that the administration involved in running a limited company can be complex and costly. You must file an annual return and company accounts in a specific format so you are more than likely to need the services of an accountant. Also, any changes must be documented on the right form, which is not always easy to locate or easy to understand. You would be wise to consider another option unless you are specifically advised that a limited company structure is the best for your circumstances.
Setting up a Partnership
There are two forms of partnership arrangement:
- A partnership, which works in a similar way to a sole trader but with 2 or more people equally responsible
- A limited liability partnership (LLP) which works a bit like a limited company with 2 people holding an equal number of shares.
Setting up a Community Interest Company
If you’re setting up a company for community benefit and not to make a private profit you can set up a community interest company (CIC). However there are strict rules for the set up and operation of these to ensure the assets continue to be used appropriately. See our article on How to set up and run a limited company for more information on the rules for CIC business structures.
Choosing the best business structure for your small business
Generally speaking, if you’re providing goods or services that someone can sue you over if things go wrong you should consider a limited company business structure. A limited company may also have more credibility with potential investors, customers and suppliers. Note that you do not have to be a limited company to employ staff, and being a limited company has nothing to do with whether or not you need to register for VAT.
See our article on How to set up and run a Ltd company for the advantages and disadvantages of being a limited company.
You should take advice from a qualified accountant before deciding which is the best option for your business.
The following tax advice books are available from the Now Let's Get Started bookshop, delivered to you in association with Taxcafe: