What’s the Best Legal Structure for your Business?

Should you be a sole trader, partnership, limited company or LLP? What’s the Best Legal Structure for your Business?

You’re prepared and ready to start your new business, but how should you decide on the correct legal structure for your business? The answer to this question should not be taken lightly, as the legal structure you choose can have a significant impact on your ability to grow and survive.

There are many structures which can be considered depending on the activities and needs of your business; however it is unlikely that as a new start, you will need to start as a public limited company (PLC), or offshore company. Other structures such as community interest companies and co-operatives tend to be required in specific circumstances.

The best initial approach is to keep it as simple as possible as using more sophisticated structures can come later.

Business legal structure advantages & disadvantages

Structure Advantages Disadvantages
Sole trader No fee to set up & easy to establish

Owner retains full control

Very little financial reporting

Owner has full liability for debt

Pay more in tax on profit

Can lack credibility in market

Partnership As above, plus

More potential to raise finance

More potential to spread liability and risk across partners

As above which will affect all partners, plus

Can inherit debt creator by partner/s

Can be difficult to dissolve partnership

Limited company Less personal financial exposure – liability is limited

More favourable tax regime

Likely to be more credible in the market

More potential to raise finance

Administrative and regulatory demands are heavier, including initial registration

Annual accounts and financial reports must be placed in public domain

Taking money out of the business can be more complex than sole trader

Limited liability partnership (LLP) Flexibility: can be incorporated in members’ agreement

Offers advantages of limited company and partnership combined

Profit taxed as income

Partners must disclose income separately to HMRC

LLP must start to trade within a year of registration – or be struck off

 

Take a listen to gain further insight into how you can decide which legal structure is best for your business.

Ref: Startups.co.uk

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