There are many reasons why you might want to start your own business. Maybe you wish to work for yourself on your own schedule, or perhaps you have a hobby that's become an exciting business idea.
Setting up a business in the UK can be done in a number of ways, but all of them require registration of some sort to be legally recognised by the government.
However, before registering your company, you must decide on a business structure. The business structure you choose will significantly affect the amount of tax you pay and your level of personal liability.
This article outlines the four ways to form a business to help you understand the key differences between business structures and decide which is right for you.
1: Register As A Sole Trader
Also known as a sole proprietorship, a sole trader is a type of business structure in which an individual operates a business as the sole owner and is personally responsible for all aspects of the company, including its management, finances, and day-to-day activities.
Unlike a limited company (LTD) or a limited liability company (LLC), a sole trader is not a separate legal entity from the business owner. Instead, it is an extension of the individual. This means that the owner and the business are considered one and the same in legal terms, and the owner is personally liable for its debts and obligations.
Sole trader businesses are often chosen by people who want to start small businesses with minimal administrative complexity and formalities.
2: Form A Business Partnership
A business partnership is a legal and organisational structure in which two or more individuals or entities collaborate to run a business together and share its responsibilities, costs, risks, profits, and losses.
There are three main types of business partnerships:
- General partnership: Similar to a sole trader, a general partnership involves two or more individuals (partners) who share responsibility for the business's operation and its profits and losses.
- Limited partnership: A limited partnership comprises one or more general partners who manage the businesses and one or more limited partners who do not participate in its management.
- Limited Liability Partnership (LLP): Similar to a limited company, an LLP is a separate legal entity in which partners have limited liability for the partnership's debts.
Our recent blog post provides more information on forming a business partnership and explains the benefits. Read our in-depth guide here to learn how to form a business partnership.
3: Set Up A Limited Company (LTD)
A limited company (LTD) is a type of business that is a separate legal and financial entity from its owners/shareholders/directors. This structure provides liability protection to the owners, meaning they are protected from personal liability for debts incurred by the business.
Limited companies have directors who are responsible for the company's day-to-day management and must prepare and file annual financial statements to Companies House.
Companies House is responsible for all limited company registration in the UK. To set up a limited company, you must register with Companies House and provide information about your company's directors, shareholders, and registered office. You can do this online or by post.
4: Purchase A Vintage Company
Also referred to as 'old companies' and 'aged shelf companies', vintage companies are those that have existed for some time and filed confirmation statements and company accounts with Companies House.
All vintage companies have an existing company number and are available for immediate use - some vintage companies also have a trading history.
Read the benefits of purchasing a vintage company here.
We have a substantial number of vintage companies for sale, ready for immediate use, which can offer you considerable benefits compared to forming a new limited company.
Ultimately, the type of business structure you choose should be based on your specific needs, future goals, and current circumstances.
With over 40 years of experience in the industry, we are the market leader in limited company formations in the UK and offshore. For more information about our company formation services, click here.