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Comparing business structures

The structure you choose affects the tax you pay, who controls the business, and what happens to your business debts.

Sole trader

A sole trader is a business owned and run by one person. There are over 3 million sole traders in the UK, making it the most common business type.

As a sole trader you:

  • are self-employed
  • make all the decisions for your business
  • register for Self Assessment and complete a Self Assessment tax return each year
  • keep all the profits your business makes
  • can hire people to work for your business

This might suit you if:

  • You want a simple set up with minimal reporting requirements
  • You want to keep control of the business
  • You want to get started right away without doing lots of paperwork
  • You are providing services as a freelancer and have no plans to grow

This will not suit if:

  • You’re worried about financial risk and being personally responsible for your business debts
  • You want other people to invest in your company
  • You want to be able to sell or pass on the business later
  • You will be competing for the same work as limited companies - clients may see them as a safer bet

How to set up as a sole trader and register for Self Assessment on gov.uk (opens in new tab)

gov.uk

Limited company

A private limited company is an incorporated business type, which means it is a separate legal entity, and you are not personally responsible for the business’s debts. 37% of UK businesses are limited companies.

As a limited company you:

  • are employed by the company, and can receive a salary and dividends
  • appoint a company director to run the business – this can be you or another shareholder
  • register with Companies House and file annual accounts and statements which are published online
  • pay Corporation Tax on your profits
  • follow strict rules setting out how you must run the company, manage money and keep records
  • can hire people to work for your business

This might suit you if:

  • You want to protect your personal assets from business debt
  • You want others to invest in your company or want to apply for business loans
  • You will make enough tax savings from being a limited company to offset the extra admin costs

This will not suit if:

  • You want to avoid complex paperwork
  • You want to keep your business accounts private
  • You do not want to pay for accountancy services and do not have the skills to do your accounts and returns yourself

How to set up a limited company on gov.uk (opens in new tab)

gov.uk

Partnership

A business partnership is a business owned by 2 or more people who manage the business together and share its profits. Around 6% of UK businesses are partnerships.

As a partnership, you:

  • are self-employed
  • are jointly responsible for making decisions with your other partners – but should set up a partnership agreement explaining how you will do this
  • pay income tax on profits and must register for Self Assessment as an individual and as a partnership
  • divide profits between partners with each person paying tax on their share
  • can hire people to work for your business

This might suit you if:

  • You want to set up a business relationship with other people and want a simpler structure
  • You want to keep your business's information and financials private
  • You're willing to set up a properly drafted partnership agreement that explains how things will run

This will not suit if:

  • You're worried about financial risk and being personally liable for the business's debts
  • You want other people to invest in your company
  • There's a strong risk of conflict between you and other potential partners

Types of partnership

There are 3 different types of partnerships, including a Limited Liability Partnership which has similar reporting and liability arrangements as a limited company and is often used by professional service firms.

How to set up a business partnership on gov.uk (opens in new tab)

gov.uk

Social enterprise

A social enterprise is a business with a social, community or environmental mission. It is not a legal business structure.

They can be set up as:

  • community interest companies (CICs)
  • private companies, limited by guarantee
  • co-operatives
  • private companies, limited by shares (although this is less common)

Learn about the legal structures for social enterprises on socialenterprise.org.uk (opens in new tab)

socialenterprise.org.uk

How to set up a social enterprise on gov.uk (opens in new tab)

gov.uk

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