Starting a Business in the UK – The Different Business Structures
Despite the affect the pandemic has had on so many small (and large) businesses, there is still a desire in most of us to be “our own boss”. But where do you start? Well, once you have your idea, business plan and all your ducks in a row, there are steps to take to get up and running from a legal and administrative perspective.
Have you decided what legal structure your business will be? There are different options and you need to choose which is the most suitable for your business.
If you want to work as a self-employed person in the UK or run a business on your own, you can become a sole trader.
As a sole trader, you can keep all your business profits but must make your own arrangements to pay income tax and National Insurance. You are personally liable for all business debts.
This is an equal partnership with two or more individuals (or companies) setting up together. Responsibility is shared equally as are the profits with each partner paying tax on their share and jointly liable for debts and losses. This structure is often suitable for small businesses.
Similar to general partnerships but has at least one general partner who runs the business and is personally liable for any business debts. The partnership also has at least one limited partner whose input is purely financial and who is only liable up to the amount they’ve contributed.
Limited liability partnership (LLP)
This partnership agreement involves neither partner being personally liable for debts that the business can’t pay. This partnership requires a written LLP agreement and must register with Companies House.
Private Limited Company (Ltd)
This business type is a separate legal entity from the people that run it. Limited companies are incorporated through registration at Companies House and need at least one director and one shareholder. Shares in the company cannot be traded publicly.
Public Limited Company (PLC)
PLCs differ from limited companies in that their shares may be traded publicly. You need to have a minimum share capital of £50,000, with at least 25% paid prior to start-up.
This company type isn’t very common in the UK. It involves shareholders having joint unlimited liability for business debts, meaning they can be covered with personal assets in the event of the business assets not meeting debts.
Mainly for charities, co-ops and community interest companies (CIC) and exists to invest any profits made to meet charitable, social, or community objectives rather than to distribute among shareholders.
This is an unregistered, unincorporated form of non-profit organisation that can include voluntary groups, small community groups, and sports clubs.
So, which one are you going to be?