Choosing a Business Structure

So, you’ve decided to start a business, but you don’t know anything about choosing a Business Structure. Or what one is. Or which one to choose.

Well, ultimately, it’s your choice and you should choose the structure that’s right for you.

To help, I’ve listed below the main types of business structure and a brief summary of each one.

Sole Trader

If you’re working for yourself on your own, you’re most likely to be considered a Sole Trader.

This means you, alone, are responsible for running your business and meeting the legal requirements that come with buying and selling goods or services. And you do this without a partner or under a Limited Company.

This is the simplest business structure to set up and operate under.

As a Sole Trader you:

Can keep any profits made after tax and National Insurance is paid,
Can Employ Staff
Must submit a tax return
Are responsible for any debts of your business

But don’t be put off by the idea of being a business. A sole trader is just that – one person, you, working for themselves. You don’t need to be a shop owner. You could be a taxi driver or hairdresser. Becoming a business is just the official term.

To become a sole trader, all you need to do is register as self-employed with HM Revenue & Customs (HMRC).

Partnership

A partnership is a business with one or more people who share:

responsibility for the business, and
the business profits

You can draw up a partnership agreement, so that everyone is clear on how the profits are split up.

When you set up a business partnership you need to:

choose a name
choose a ‘nominated partner’ –
register with HMRC

The ‘nominated partner’ will be responsible for the partnership’s tax returns and record keeping.

Business debts are dealt with under what’s known as Joint and Several Liability. This means all members of the partnership are responsible for the debts. This is either in full, or individually, depending on how much they can afford to repay.

All partners will need to submit a Self Assessment tax return for their own share of the profits.

And the nominated partner will have to arrange submission of a partnership Self Assessment for the business.

Limited company (Ltd)

A private limited company (Ltd) is a separate legal entity from the people owning and running it.

It will issue shares to, and effectively be owned by, it’s shareholders. This could be you.

A shareholder’s personal assets are protected if the company fails (is liquidated). However, any money invested in the company may be lost.

It must be registered (or incorporated) with Companies House and have a suitable name and address.

A company must have at least one director. This is usually the person who started the business. They are legally responsible for running the company on behalf of the shareholders.

You can be a Director and a Shareholder of the same company.

A Ltd company will have to pay Corporation Tax on any profits. And the after-tax profits are divided up among the shareholders.

The company will need to submit its annual accounts to Companies House and a tax return to HMRC.

The director will also need to fill in a Self Assessment tax return. But they’ll only pay tax on the money they earned by running the business, not the profits.

To set up a Limited company (and be incorporated with Companies House) you’ll need:

the company’s name and registered address
at least one director
at least one shareholder
details of the company’s shares
rules about how the company is run – known as ‘articles of association’
to pay an application fee.

You can register online and Companies House has further guidance on incorporating a limited liability company.

Pros and Cons when choosing a business structure

Here’s a simple table which shows the pros and cons of each type of business structure

Sole Trader

Partnership

Limited Company

Pros

Low cost, easy to set-up

Full control retained

More potential for finance

Easy to form & manage

Less personal finance

Limited liability protection

Cons

Responsible for debts

Disagreements

Responsible for debts

Set up & running costs

Accounts made Public

Contact us now if you need help with choosing a business structure

Or just email us if you want our:

New Business Start-up Checklist, or;
Business Plan Template, or;
Help with
- Bookkeeping
- Software
- Accounts
- Taxes

Achieving Success with your business

If you’re just starting your new business venture or struggling with the steps to the next level contact us now.

We can help you with this and much more

Get ready for success with Moore Financial Management

We can help you with all of your compliance obligations such as:

Self Assessment Tax
Making Tax Digital
Corporation Tax
Filing Accounts
VAT
Payroll and Pensions

But also the things you really need to increase the chances of your business being a success

Management Accounts
Cashflow Reporting & Forecasting
Budgets
Real Time up to the minute information

These are the things that add value and the information you need in order to make the correct business decisions

If you’re not confident with any of this or don’t have the time, getting a licensed accountant to do it for you can actually save you money. It can free up your valuable time which you can use to concentrate on your business. You can also benefit by knowing it has been done correctly and on time.

Mistakes can be costly.

As can missing deadlines.