Basic business structures
It is important to be aware of the main basic business structures available if you are considering starting a new business. There are three commonly used forms of business structure.
- A sole trader – this is the simplest way of starting and running a business. However, you are personally responsible for your business’s debts. You also have accounting responsibilities.
- A limited company – the business is quite separate to you as a person, but there are more reporting and management responsibilities. In most cases you will not be personally liable for business debts, but it also means that you cannot draw money from the business whenever you feel like it without generating tax issues.
- Partnership – There are two main types of partnership, a conventional version where you work with one or more partners in the business. This is the simplest way to run a business for 2 or more people. There is also a limited liability partnership or LLP, This more complex structure provides you and your partners with the protection of limited liability, much like a limited company.
Which business structure is best suited to your new business will depend on a number of factors. For example, cash flow, your longer-term plans for the business, whether or not you need the protection of limited liability, your willingness to comply with legal and administrative obligations of companies and LLPs and the nature of any investment you are seeking to capitalise the business.
Planning before you make a start is essential. Please call if you would like to discuss your options. Getting it wrong can be a painful and costly experience.
Source: HM Revenue & Customs | 12-11-2019