Type of Business Structures in the UK
3E Accounting demystifies the process of choosing the right company by exploring the type of business structures in the UK.
To extrapolate on a well-known adage, not all companies are created equal. This is no truer than in the type of business structures in the UK. Choosing your company’s structure is one of the primary things to consider from the onset. It will affect the way you operate and have implications for compliance and tax responsibilities.
A Choice of Companies
The United Kingdom has more than six million small and medium enterprises (SMEs), most of the sole trader and private limited variety. However, these are not the only business structures available in the UK. Each has its pros and cons as well as registration processes that differ. Doing some research beforehand will ensure that you choose the right structure for your entrepreneurship.
By far, the most uncomplicated structure to set up is the Sole Trader or Sole Proprietorship. Ideal for the solo entrepreneur who wants to have full control over the business, sole proprietorships usually have low operational costs.
- No incorporation, but HMRC needs to be informed about your business.
- Taxes are self-assessed, and the owner is responsible for keeping accurate company, financial, and accounting records.
- Any number of employees can be hired, but the owner is entirely and solely liable for all the business’s debts.
If you have a business partner, a partnership may be a better option. Created by a Partnership Deed, two or more partners can share ownership and operational control over the business. The Deed stipulates capital contribution, control, profit and tax ratios of each partner. All partners need to register with HMRC individually and pay tax on profits.
Partnerships can be structured as follows:
- General and limited partnerships: not incorporated, and only HMRC needs to be informed. In a general partnership, all partners invest, run daily operations, and have unlimited liability. Conversely, in a limited partnership, some partners only contribute financially and are liable to the extent of their investment.
- Limited liability partnerships or LLP: registered with Companies House and has a separate legal personality. Liability is limited as the partnership is incorporated.
A lot of entrepreneurs do tend to prefer a limited company structure. Registered with Companies House, incorporation gives the company a separate legal identity status. This limits owners and shareholders’ liability and allows the company to enter contracts, own property, etc. Limited companies are pretty straightforward to set up and can be operational within a day. The Board of Directors will usually oversee the running and operations of the business. Companies will need to file annual returns and are liable for 20% corporate tax.
Limited companies can be:
- Private Limited Companies (Ltd): limited by shares or guarantees. Non-profit organisations or charities are usually limited by guarantees.
- Public Limited Companies (Plc): can be registered on the Stock Exchange and offer shares or debentures to the public.
These are the usually preferred business structures that can be found in the UK. Other types you may want to consider include:
- Consultant or Freelancer
- Social Enterprise
- Charity or Community Interest Company (CIC)
- Public Unlimited Company
- Subsidiaries and Branches of Foreign Companies
If you are still unsure about which type of business structures in the UK is the most viable, Contact 3E Accounting today. 3E Accounting offers innovative and customisable business solutions for the discerning entrepreneur. Along with our affiliates and partners, we offer decades of industry experience that can help you make the right choice. Our team of experts will guide you through the decision-making process with impeccable professionalism. Your business future begins with the right choice, so contact us today.