When you start a business, there are four main options to choose from for a business structure. This is an important decision to make. Considering the tax and financial advantages, you need to make that choice accordingly to your situation.
What are the structures ?
After creating a business plan and doing the market research, the next step is to find your business structure. The main different structures available to you are Sole Trader, Partnership, Limited Liability Partnership and Limited Liability Company. Sole Trader is considered as self employed. Indeed, this means you must register with HMRC for self-assessment as soon as you start trading.
Furthermore, Partnership is when you and your partner(s) share responsibility for your business. Partners share the business profits, and each partner pays tax on their share. For Limited liability partnership the number of partners is not limited, but at least 2 have to be designated members responsible for filing annual accounts. Limited liability company is a private company incorporated and limited by shares. This means that the company has shareholders and the liability of the shareholders to creditors of the company is limited to any money they originally invested.
How do you choose your structure ?
Each structure has its benefits and disadvantages. The decision you make depends on your situation and the investment you have put into the business. Sole Trader is the simplest form of business entity where one person is responsible for all a company’s profits and debts. It comes at low cost and can offset losses against other income for tax purposes. The Partnership structure has the same concept as Sole Trader with multiple individuals instead of just one. This is the least popular structure because you as an individual are liable for all debts of the business not just your share.
Limited liability partnership is a structure that comes at a bigger cost. Some or all partners have limited liabilities, and exhibits elements of partnerships and corporations. In this structure, you have the advantages of limited company and partnership combined. Limited liability company is a structure where the advantage is that you are not exposed financially and allows you to protect yourself when you have put a lot of investment in your business. A limited company can also make your business look more prestigious. However, it does come at a high cost. And annual accounts and financial reports must be placed in the public domain.
For more information and to help you find the right business structure for you, please contact us.
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