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The legal structure that you choose when you start a business affects how the business operates. It impacts the amount of tax you pay, how you pay it, and even how you register the business with HMRC.

Choosing a name for your business

First thing’s first, you need a name for your new business. A name which reflects the brand you want to become, that isn’t already in use. The name is often the customers’ first impression of your business, so it needs to be one that stands out for the right reasons.

Just be aware that duplicating a name can land you in legal bother further down the line, and if you plan to set-up a limited company, the name you register can’t be the same as one already in use.

It can also make it more difficult to market your new start-up. You don’t want your customers going to the competition by mistake!

 
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Choosing the most efficient structure for your start-up business

Once you have a name for your business, the next step in carving its identity is to register it legally. Will you be a self-employed sole trader with personal liability for all business debts? Or do you want to operate as a limited company, protected by limited liability?

We’ve given a brief overview of each type of business below, but it’s well worth talking to an expert to explore your options. Don’t forget, you may also need to hold various licenses and permits, depending on the type of business you plan to run.

 
Starting a Business Guide

Starting a business as a sole trader

Being a sole trader is also known as being self-employed. You are the owner of the business and in full control of it, with no legal distinction between you and the business. This means:

This also means that you’ll register your sole trader business in your own legal name, but you can choose to operate under a business name. You’ll need to tell HMRC which name you will market the business under.

Starting a business partnership

In a business partnership, you and the other partners share the business profits, as well as personal responsibility of any debts. Your partner can be a person, a limited company, or even another partnership.

The partnership must choose a name to operate as, and one of the partners must be the ‘nominated partner’. This is the person responsible for dealing with the legal obligations, such as registration, bookkeeping, and the partnership’s tax returns.

The partnership must register for Self Assessment as an entity in its own right, and each individual partner (a person, not another entity) must register personally. Each partner is responsible for submitting their own return and paying tax on their share of the profits.

It’s usually a good idea to document the partnership agreement in writing. This makes it clear how the profits are to be shared, manages expectations, and sets out a process if someone wants to leave the partnership. Our guide involved in setting up a new business partnership.

Our Business Partnership Guide explains the rules and responsibilities in more detail.

Starting a business as a limited company

A private limited company exists as a legal entity in its own right, separate to the owners and directors. This separation protects their personal assets against any loss within the business, but they may lose any investments they make in that business.

You can start and run a private limited company by yourself, or you can appoint other directors to help you.

To set up a limited company, a process known as incorporation, you must register the business with Companies House. Our video guide to incorporation explains the process in more detail.

 

 

 

Starting a Limited Liability Partnership (LLP)

As its name suggests, an LLP limits the extent to which partners are liable for any debts which the business incurs. Unlike a sole trader or partnership, where those involved are wholly responsible for any debts, an LLP limits the liability of its members to the amount they invest, or personally guarantee against loans.
 

LLPs must register at Companies House.

 

There must be at least 2 partners who are ‘designated members’, responsible for filing account information about the partnership. Each partner must also register as self-employed with HMRC and pay tax on the income they earn from the business.

Like regular business partnerships, it’s a good idea to create a partnership agreement which details how to share out profits, and who is responsible for what.

Talk to one of the team about our online accountancy services for different types of businesses. Call 020 3355 4047, or ask for a free call back.

About The Author

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.

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