As a new businesses should I operate as a sole trader, partnership, limited company or LLP?
This is the one question that all new start ups ask. I have summarized briefly the
four different structures. However, all businesses are different and a structure that is
best for one will not be suitable for another. Therefore you should always seek
professional advice at the outset.
The easiest way of starting up in business is as a sole trader, and you will become
You need to inform HMRC of your intentions by registering as self employed. You
will have to complete a self assessment tax return each year. You pay income tax
and Class 2 and Class 4 National Insurance Contributions on any profits your
Unlike the limited company structure, sole traders do not have limited liability in case
something goes wrong – any business debts you incur, will be counted as personal
debts, and your personal assets including property may be at risk.
Two or more self employed persons or businesses may decide to work together and
set up a partnership.
As with sole traders, partnerships do not have the benefit of limited liability. The
partners will share in all aspects of the business, including profits, losses, assets and
If you are setting up in partnership, you should sign a partnership agreement. This
should cover important issues such as how the business will be run, how the profits
are to be split, and what happens if a dispute arises between partners.
You will need to complete a partnership self assessment tax return, and each partner
will also need to complete an individual form. Partners are taxed in the same way as
Limited Liability Company
A limited company may provide a more professional image for your business.
A limited company is a distinct legal entity from its directors and shareholders.
Company directors have limited liability. However, often personal guarantees are
required in order to secure business finance, and in that case there will be some
personal liabilities. You should always seek professional advice before giving
Shareholders are only liable for the amount of money they have invested in the
Limited company directors have a number of legal and financial obligations to meet,
with strict deadlines. These include filing an Annual Return and accounts with
You will be liable to pay Corporation Tax on any profits the company makes, and
have to complete a corporation tax return form. A director also has to complete a
self assessment tax return form.
Limited Liability Partnership (LLP)
A limited liability partnership is a relatively new concept and is not widely used.
An LLP shares some elements of both the limited company, and the partnership
The LLP is a distinct legal entity, like a limited company, and is governed by
In order to form an LLP, there must be a minimum of two members, which can be
individuals or businesses.
A Deed of Partnership should be signed and this should outline how the LLP is to be
run, and detail the roles and responsibilities of its members.
The LLP model is relatively flexible, and members are taxed through self
For further information or advice please call us on 0151 645 5656