How should a new company be set up? There are a few different kinds of business structure in the UK to be aware of.
Each of them has advantages and disadvantages, and choosing the right one depends on what you are trying to do.
In this post, I’ll be showing you the different ways you can structure a new business. We’ll be covering partnerships, sole traders, limited companies and limited liability partnerships (LLP). By the end of this guide, you’ll have a clear understanding of how to structure your new business in the UK.
According to Crest Legal, the structure of your business is not just a formality, as it will affect your personal liability and taxation.
Here are the most common options:
1. Sole trader
If you set up a business as a sole trader, it means that you are running the company by yourself.
You make the decisions, you control the money, and you control the work.
Being a sole trader certainly has its advantages. You’re in control. You’re not answerable to anyone else. But it can be hard work.
You spend a lot of time writing cheques (or paying an accountant to write them). You spend a lot of time worrying about whether you have enough money. You spend a lot of time worrying about whether you have enough clients. You spend your time running around to meetings.
If you set up a business as a partnership, it means you are running the company with another person, and both of you share responsibility for everything.
A significant downside to being a sole trader is that you are personally liable for any debts incurred by your business.
According to sjdaccounancy.com, you may also run into barriers when it comes to getting finance or selling your business.
2. Business Partnerships
One of the most common types of business structure is a business partnership.
Partners own equal shares in the business, and are responsible for its success or failure.
This is often the simplest type of business structure, but there are also disadvantages.
The standard way to set up a partnership is for each partner to agree to a partnership agreement that gives details of who owns what share of the business, who is supposed to do what, what happens if people fall out, and so on.
This can be time-consuming, and unless each person involved in the partnership is fully competent to run a business, it can lead to a lot of disagreements later.
According to Wellers Accountants, you might also be responsible for any misconduct or negligence from your partners.
3. Limited Liability Partnership
Another solution is to form a Limited Liability Partnership (LLP). An LLP is a partnership, but the liability of each partner is limited to the amount they have invested in the company. For example, if a firm of solicitors has partners, and each partner invests £10,000, they each have limited liability for £10,000.
LLPs need special regulation, and different rules apply to LLPs than apply to ordinary partnerships.
4. A limited company
A limited company is one of the most common types of business structure in the UK. It is made up of shareholders, who have limited liability for the debts of the company, and directors, who control the company. In normal trading circumstances, shareholders have certain rights.
A limited company is a separate legal entity, owned by its shareholders.
It is run by a board of directors, who are ultimately responsible for the company’s success or failure.
When a company is set up, the shareholders need to be sure of two things: that their investment will be protected, and that the business will do well.
A limited company’s shares can be bought and sold. This makes it a very attractive investment for many people.
A limited company can sell shares to an unlimited number of people, so it has the chance to grow exponentially.
Also, when a limited company sells shares, it can make better use of the money than a company limited by guarantee, which is limited only by the amount of cash it has on hand.