Types of Business Entities to Set Up in the United Kingdom
3E Accounting offers a quick read on types of business entities to set up in the UK to help entrepreneurs make an informed choice.
The United Kingdom has many different types of business structures and choosing the right one can make or break a business. The types of business entities to set up in the UK will leave any entrepreneur spoilt for choice. The most popular in terms of ease to establish, cost efficiency and business viability can be narrowed down to four types.
Registered Business Structures
Registered types of business structures do not require incorporation as a company and are either Sole Traders or Partnerships. As no separate identity is created, and the liability of owners and partners are unlimited.
Sole traders are self-employed but can hire staff to work for them. Only the owner is solely responsible for running the business and keeps all profits. Freelancers earning more than GBP1,000 annually are also required to register as sole traders.
Partnerships consist of two or more individuals, with shared responsibilities of running the business and investment. Profit and tax ratios are agreed beforehand in the Partnership Deed, which establishes the business.
Partnerships can be:
- General where all partners invest, run daily operations, and have unlimited liability.
- Limited where some partners only contribute financially and are liable to the extent of their investment.
Sole traders and partnerships can trade under their own or a trading name, and there are several rules to follow when choosing a name. The use of ‘Ltd’ or ‘LLP’ is prohibited, and names cannot be offensive or use sensitive words, amongst others. It’s best to research viable names using a free online name checker.
Sole traders and the nominated partner need to inform HMRC on their business’ status, register for national insurance, and send in annual Self Assessment tax returns. Other partners need to register separately. Income tax is paid individually on profits while VAT registration for the business is required for turnovers exceeding GBP85,000.
Incorporated Company Structures
Companies that are incorporated will have a separate legal identity. This confers legal status on the company as an entity and limits the liability of owners and shareholders. The two most popular forms are the Limited Liability Partnership (LLP) and Limited Companies.
LLPs are hybrid structures that offer the advantages of Partnerships with the added benefit of incorporation. Partners in an LLP have limited liability to the extent of their investment, and partners can be individuals or another company (i.e., a corporate member). LLPs must be registered with both Companies House and HMRC and are established by an LLP Agreement. This sets out the profits, responsibilities, etc., of the LLP. Taxation regulations are similar to partnerships.
Limited companies are usually Private Limited Companies (Ltd) or Public Limited Companies (plc). They are owned by shareholders, either private for Ltd or public for plc. Limited companies must be registered with both Companies House and HMRC and must file annual returns. All profits are distributed only after paying Corporation Tax.
Incorporating a limited company is a more complicated process and requires the submission of several documents. This includes the Articles of Association and the Memorandum of Association, which will form the constitution of the company. Limited companies will need to choose directors, a company secretary, shareholders as well as PSCs. PSCs are People with Significant Control over the company. A Plc will have added submission requirements if it aims to be listed on the Stock Exchange to sell shares or debentures to the public.
Other types of limited companies include those limited by guarantee. To learn more about this and different types of business entities to set up in the UK, Contact 3E Accounting today. 3E Accounting offers industry-standard company incorporation services that can be customised to suit every need and budget. Get in touch with us today for a friendly chat with one of our specialists.