Business structures

Activities in the UK may be conducted using one of a number of business forms. These commonly include:

• sole trade
• partnership
• limited company
• limited liability partnership (LLP)

Each entity is taxed in a different way and each offers advantages and disadvantages depending on a range of factors including:

• taxation implications
• the type of business
• the funding needs of the business
• the number of business owners (and the frequency of change in owners)
• the inherent risks in the business
• the personal income needs of each business owner
• overall business strategy
• ownership of any assets required for the business

Broadly speaking, under current tax legislation, a limited company structure is likely to represent the most tax efficient route for a business operating in the UK. However this will not necessarily be the most suitable structure for all businesses.  Before incorporating, small businesses should consider other factors, including:

• Security and financing: because a limited company or LLP are different legal forms to trading as a sole trader or a partnership, this may change the way the bank needs to structure any finance, such as an overdraft or loan.  They should be consulted before proceeding.  Suppliers may also be less keen to provide unsecured credit.
• Business risk: some businesses, by the nature of their trade, are more risky than others. A particularly risky trade would imply that a limited company or LLP structure should be considered.

Where merited, additional layers of complexity can be introduced, for example, by creating:

• a group of companies (to separate different businesses or to separate assets from trading activities)
• an LLP with one partner being a limited company

However, it is not the case that every type of structure will be appropriate in all circumstances. We would recommend that a detailed review is carried out before any decisions are taken to set up a new entity or change an existing structure.

If you need advice or would like to discuss how we might assist you, please do not hesitate to contact us.