Choosing the right type of business for you
Starting a business can be daunting and it’s important to do your best to get it right first time. To help, we’ve compiled a short list of the different types of businesses so you can easily see what type will best suit your business plan.
A sole trader is the simplest type of business structure. Put simply a sole trader is when you are the only owner of the business and there is no legal distinction between the individual and the business. Anyone who begins to work for themselves is considered to be a self-employed sole trader by the government; regardless of whether you have informed HMRC.
As a sole trader, you:
- Keep all of your business’s profits after you’ve paid tax on them.
- Are responsible for any losses your business makes.
- Must register for Self-Assessment and file a return every year.
- Must register for VAT if your turnover is over £85,000.
- Abide by certain running and naming rules business; such as not including words such as “Ltd, plc” in your sole trader name.
There may be additional rules and regulations that could affect your business. For more information on sole traders please visit the GOV.UK website.
In a partnership, you and at least one other partner personally share responsibility for the business. This includes:
- Any losses the business makes.
- Bills that are associated with the business; such as stock or equipment.
For more information on Partnerships please visit the relevant section on the GOV.UK website.
You can register a business with Companies House so that it is a private limited company. This means that the business is:
- Legally separate from the people who run it;
- Separate finances from your personal ones;
- Keep all profits after paying tax.
However you should note that you’ll also need
- Shareholders to agree to create the company and the written rules.
- Details of people with significant control over your company, for example an individual with more than 25% shares or voting rights.
There are many other regulations you may need to consider depending on the circumstances of your business, yourself and your shareholders.
For more information on Limited Companies please visit the private limited company section of the GOV.UK website.
You can establish a limited partnership to run your business. A limited partnership must have at least one ‘general partner’ and one ‘limited partner’.
General and limited partners have different responsibilities and levels of liability for any potential debts that the business can’t pay.
All partners regardless of general or limited status pay tax on their share of the profits.
For more information on Limited Partnerships please visit the limited partnership section of the GOV.UK website.
Community Interest Company
If you are setting up a business that helps people or communities (a social enterprise), then you should consider establishing a Community Interest Company.
For more information on Community Interest Companies please visit the social enterprise section of the GOV.UK website.
To find out more about our Business Support Programme, get in touch!
Alternatively, for more general information about types of businesses, you can visit the HM Revenue and Customs website, or Companies House: