Which Type of Company Would Suit Your Needs Best?
When people refer to a company as an ownership structure for a business, they might actually be referring to several different entities. The type of company a UK business is structured as will determine the legal obligations of its owners and directors.
A sole proprietorship is the simplest form of starting a new business. It is also the most common way for a new business to be organised. However, there is a range of options when forming a company that may suit your needs better. It depends on the kind of business, number of owners, scale, and liability and taxation issues. It is also possible to begin your business venture with one structure and eventually move on to a better one.
Types of Business Structures in the UK
Before choosing a new business structure for your company, you must understand the options available to you. Once you have a sufficient understanding, you may make an informed choice.
1. Sole Proprietorship
A sole proprietorship is by far the easiest way to start a business. It only requires one person to run it, and that person will be responsible for all the successes and failures of the company. Technically, the sole owner is seen as self-employed. Therefore, any profits or losses will only be for the said owner alone.
According to a 2019 survey, almost 60% of all businesses in the UK were set up as sole proprietorships. So it is easy to set up and get started.
Solo proprietors do not have to register with the Companies House, but they must still notify HRMC. When you choose a designation for your corporation, you have two options: Register under your own name or register under a fictitious name. Either way, you can’t disassociate with the business.
As your business matures and expands, you can choose a different organisational structure that suits your needs better.
If you’re starting your business alone and find it overwhelming, a partnership is a good option. If you have a family member or a friend who’s experienced in business, ask them to join you as your partner. It is a common business ownership model with two or more partners, where the partnership usually holds and manages all assets. Depending upon your circumstances, a partnership can be good or bad.
Partners share the profits according to their partnership contract. Please remember that if a single partner incurs a debt, all partners are responsible for that. This is called joint liability.
3. Limited Company
Legally, a limited company is separate from the company’s owner. It is more complex and burdensome to set up and operate than other business structures. A limited company offers limited liability. You are not personally responsible for the business’s losses, and debt as the business is a separate entity responsible for its own finances. Limited companies are the most popular structure for small businesses and may attract more clients than sole traders or partnerships.
The shareholders own the company and influence what it does. If you want to protect yourself (e.g. from personal liability for debts), you can restrict ownership to a small group of people (e.g. yourself or your family). Forming a limited company is one of the most tax-efficient ways of working and can help you to save money.
Making Your Choice
In the UK, it’s up to you to decide on a corporate structure depending on your business type. This part of a business startup involves accounting, finance and taxation issues. But once you decide on the business structure, you’re ready to move on to operating the business.