How to: Choose the correct structure

Starting up in business this year? Choosing the correct structure can be critical to the success of your business, so it is worth taking some time out to consider the four main types before the big launch.

Sole traders

Exactly what it says on the tin. There are no upfront fees to pay and there is very little red tape to deal with. The only real requirement is that you pay your self-assessment tax each year.

• Major pro: You can make all the decisions regarding your business and set-up costs are low
• Major con: You alone are liable for any debt should your business fail

Partnerships

Partnerships are often formed as the next step after sole trading, for example if two well-acquainted individuals decide to build a more varied business model by joining forces.

• Major pro: The business can stay afloat if one partner takes a holiday or is off sick
• Major con: You could find yourself responsible for your partner’s business debts

Limited liability companies (LLCs)

Setting up a limited company involves registering at Companies House. If things go wrong, shareholders are only responsible for the face value of their share in the business.

• Major pro: Becoming an LLC adds credibility to your business and makes borrowing easier
• Major con: Limited companies tend to involve more paperwork and bureaucracy

Limited liability partnerships (LLPs)

LLPs are a sort of hybrid between LLCs and ordinary partnerships and are often formed by professional services providers such as legal and accountancy companies.

• Major pro: LLPs combine the limited liability enjoyed by limited company shareholders and the flexibility of partnerships
• Major con: They must begin trading within a year of registration 

Perhaps you’re not sure whether two heads would be better than one in your business, or how adopting one of these structures will affect your tax liabilities.

If so, contact us on 01454 619900 to arrange a chat about your situation.