Choosing a Legal Structure for Your Business
23/06/2022
Choosing the correct legal structure is an extremely important part of starting a business or growing your existing business as it can alter some detrimental factors.
The legal structure of your business determines paperwork, tax and management options, including liability charges and the divide between personal and business tax.
Read on to find out about different legal structures and determine which one would be best for your business…
1. Sole Trader
Sole traders are personally liable for any business debts or legality issues and is a simple business structure which directly links the business to the owner.
Being a sole trader, you can still employ people and their wages will be paid directly from yourself, which is ideal for a business with low financial risks.
Sole trader businesses have an easy setup, a there’s one sole owner, low costs and easy exit strategies in case you no longer want to be involved within the business.
2. Limited Company
Unlike a sole trader business, a limited company has a separate legal and business identity from its owner, offering more personal financial protection when it comes to legal liability.
A massive benefit of being a limited company is that members are shielded from personal liability if the business’s debts and finances collapse, which comes as great peace of mind to many business owners.
Registering with HMRC and with companies house is also a part of being a limited company, as HMRC will deal with financing employees and clients.
3. Partnership
A partnership is usually made up of two or more sole traders and is split into either a general partnership or a limited partnership.
Generally, a partnership’s structure is more costly due to fees having to be split between two traders, with agreements and experience being factors that can affect the beginning of a partnership. However, they pose a great growth potential due to having higher chances of obtaining a business loan and experience coming from either side of the business.
Partnerships are one of the most common business structures and have many benefits when it comes to trading.
4. Corporation
Corporations are usually big companies that have expanded and are separate from their owners, with legalities completely independent from their owners. There are a varied number of different types of corporations, so it’s worth researching which you think would suit your business most.
The corporation structure is ideal for businesses that have great growth potential and teams (e.g. managing directors, managers, team leaders), with advantages including having limited liability, continuity and large amounts of capital.
5. Non-Profit Organisation
Non-profit organisations are usually charities, donation centres and community businesses, that have a clear social objective and restrictions on how they distribute their profits.
The structures of this business usually involve the profits being re-invested into the company, and as a norm, these organisations rely on public donations or volunteers.
There are huge advantages when it comes to being a non-profit organisation as these are mostly exempt from any taxation and will not pay tax on most types of income including donations or rental income.
There you go, those are the most common legal structures that you can choose from if you’re wanting to start or develop your own business.
If you’re interested in finding a business to buy, take a look at our businesses for sale and start researching!
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