There are various business structures in the UK, and each provides a different set of benefits. From a startup to a sole trader, selecting a suitable business structure is the most important decision you will make for your company.
And the decision you make will ultimately be decisive to your competitive advantage, growth margins, and profitability. Here are four main business structures in the UK with varying taxation and legal terms:
In simple terms, a sole trader is a self-employed individual, and it is arguably the easiest way to set up your business in the UK. Furthermore, there is no added fee to establish your business as a sole trader. Simultaneously, the accounting is relatively more straightforward as well.
That said, sole trader structure does not have the same benefits of setting up a company. And not to mention, you will be solely liable for every business debt.
Most of the ordinary partnerships serve as an extension to sole trader businesses. As per the Partnership Agreement, you can get two or more individuals to undertake business operations. When it comes to partnerships, there are more chances for investment opportunities.
In addition, startup costs require shared management. Under the partnership business structure, the partners share the profits equally. Similarly, each partner will be liable for his or her share of debts. Today, the most common type is a limited liability partnership (LLP).
In short, it is a combination of traditional and limited liability companies. Comparatively, it offers better protection to business partners amidst profit distribution and flexible internal formation than a traditional partnership.
Private Limited Company
When you compare a private limited company to a sole trader or partnership, it is a separate legal structure of its own. And that is because there is a restriction on shareholders’ paid or unpaid amount of shares.
The best aspect of setting up a private limited company is that it ensures tax efficiency, transparency, credibility, and limited liability shield for its members for a charitable or non-profitable organization.
Ordinarily, this kind of business structure has several legal obligations and registered charities. Apart from tax advantages and protection of assets, there is higher visibility and administrative-accounting in private limited companies.
Public Limited Company
A public limited company is not far off from a private company. Apart from the limited number of shares, you will have to take care of your profits, assets, and liabilities. With a public company, on the other hand, you can trade on the stock market or sell your shares to the public.
That said, PLCs are subject to harsher tax regulations as compared to private companies. Typically, you will need a company secretary and two directors, and at least £50,000 as initial capital share.
Conclusion: Selecting the Right Business Structure
You will have to figure out your investment capital, level of privacy, management control, and an exact number of members beforehand. Whether you are starting a new business or thinking of shifting to another one, you should take into account careful considerations that will help you save your valuable time and money. Your business structure, after all, will impact your financial plans in the foreseeable future.
We can help with all of your business and personal tax and financial planning needs. For a strategic review of your finances, please contact us.
Disclaimer: We don’t take any responsibility for actions taken based on above information. Please speak to our financial advisor if you need more information. This guide was written specifically for Smart Accounting clients. Some of the information contained in this guide might not be applicable if you do not have a business managed by Smart Accounting. By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details are correct at time of writing.