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Business Structures

When setting up a business, it is essential you consider which legal structure will allow your venture to reach its full potential. Each has its own advantages and disadvantages, which is why every option should be thoroughly explored before a decision is made.

Different Types of Business Structure

There are four main types of legal structure for business:-

1. Sole Trader

The simplest legal structure is to run your business as a sole trader. This means you are self-employed, allowing you to make all the decisions and benefit from all profits.

Setting up as a sole trader is relatively simple, as you do not need a significant amount of overheads or paperwork to get started. Indeed, you must only register with HM Revenue & Customs as self-employed and complete a self-assessment tax form every year. Accounting and business audits are not necessary.

However, as your business grows you may find this structure restrictive, as you might to be start sharing responsibilities. Furthermore, being a sole trader does carry a number of risks, particularly in that your liability for debts is unlimited. This in turn could put your personal assets in jeopardy.

2. Partnership

A partnership consists of two or more people setting up a business together with the view of making a profit. This allows all risks, responsibilities, profits and expenses to be shared equally.

As with a sole trader, each member of the partnership must register as self-employed. While there is no legal requirement for a contract to exist, it is a good idea to have a partnership agreement drawn up, allowing each individual to understand their role.

There are three different types of partnership: a standard partnership, a limited partnership and a limited liability partnership (LLP). You need to be aware of how they differ, as each structure will suit a different situation. However, the main factor of consideration is liability, as only an LLP will protect the assets of all partners should the business run into trouble.

3. Limited Company

In contrast to sole traders and partnerships, limited companies enjoy the status of a separate legal entity. As the name would suggest, this limits liability, as the personal assets of the owners are separate from the company’s finances.

However, there is a lot more paperwork involved when setting up a limited company. It is necessary to register with Companies House and to have a Memorandum and Articles of Association drawn up. This can require both a significant amount of time and money.

4. Social Enterprise/Community Interest Company (CIC)

CICs are the most recent type of business structure, and can be thought of as a limited company dedicated to social and/or environmental enterprise. Profits are therefore usually reinvested back into the company, which is there for the benefit of the company.

This type of company must be registered with the CIC Regulator, while you must prove into the Memorandum and Articles that your company will be an advantage to the community in some way.

Speak to a Solicitor for More Information

If you have any questions regarding business structures, do not hesitate to seek professional assistance from a lawyer. Whether you need advice on your legal obligations or require information on how to change the legal structure of your business, a solicitor with experience in commercial law will be able to help you.

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