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Different ways to structure a business include operating as a limited company, sole trader, or partnership. Each structure has its own advantages and disadvantages, so it's important to choose the right one for your business.

Actually, there are three popular types of business structure in the UK: limited company, sole trader, and partnership. The choice of business structure can have an impact on how your business grows, how it pays tax, how it makes big decisions, and how it deals with liabilities. This is a decision that you make at the beginning, but you can change it later if necessary.

How to set up a limited company in the UK

When starting a business, it's common to operate as a sole trader and essentially work for yourself. But as you gain more experience, transitioning to a private limited company may become more advantageous.

While the process of forming a limited company (Ltd) is relatively simple, it's crucial to understand the legal, financial, and other obligations that come with it.

To learn all about private limited companies and the steps to establish one, continue reading below.

The different types of business structure
There are four common types of business structures in the UK: sole trader, partnership, limited company (Ltd), and limited liability partnership (LLP). Each of these structures has its own pros and cons, which depend on various factors such as the size and nature of your business, and your future plans. To provide a brief overview, let's compare and contrast each of these business structures.
Sole trader (self-employed)

Sole traders have the advantage of not having to pay registration fees, dealing with little bureaucracy, and maintaining full control over their business decisions. They also get to keep all their business profits after tax. However, the main disadvantage is that there is no legal separation between personal and business finances, which means that any business debts or liabilities can be met from the owner's personal wealth. This personal risk makes it unsuitable for high-cost startups. Overall, it is a simple and flexible business structure.
Becoming a sole trader, which is often synonymous with being self-employed, is a popular and straightforward business structure for startups. Unlike other structures, such as limited companies, sole traders are taxed on their profits rather than being subject to corporation tax. If your profits exceed £45,001, you'll be taxed at 40%, and any profits above £150,000 will be taxed at 45%. You may also have to pay National Insurance (NI) contributions, depending on your profits. Although being a sole trader doesn't mean you have to work alone; you can hire employees, as long as you comply with employment laws and notify HMRC.
Your advantages as a sole trader include no registration fees, minimal paperwork, and complete control over business decisions. In addition, you get to keep all the profits after taxes.
However, one of the main disadvantages is that your business and personal finances are not separate, which means that any debt or legal action against the business may impact your personal wealth. This puts you at a higher personal risk compared to other business structures and may not be suitable for a high-cost startup.
Overall, the sole trader structure is straightforward and flexible, but it comes with a significant amount of personal liability.

Партнерство — это бизнес-структура, в которой два или более человека соглашаются создать бизнес и разделить собственность, прибыль и обязательства, как указано в соглашении о партнерстве. Как и в случае с индивидуальным предпринимателем, каждый партнер регистрируется как самозанятый и подает отдельные налоговые декларации. В партнерстве может быть любое количество партнеров, но более крупными партнерствами может стать сложнее управлять, и они могут представлять большие риски (в этом случае партнерство с ограниченной ответственностью может быть более подходящим).

Преимущества партнерства включают в себя гибкость, простоту и преимущество наличия нескольких владельцев для управления бизнесом. Однако существенным недостатком является то, что все партнеры несут совместную ответственность за деловые долги и обязательства, а это означает, что в случае успешного судебного разбирательства против одного партнера все партнеры несут совместную ответственность за любые убытки.

Резюме: Оптимизированная структура бизнеса, подходящая для партнеров, которые имеют хорошие отношения и доверяют друг другу, но с риском общих обязательств.
Limited company
To establish a limited company, you need to register it at Companies House, which creates a separate legal entity. This offers the advantage of separating your personal finances from those of the business, reducing your exposure to financial risk. Another benefit is the corporation tax rate of 19%, which is often more tax-efficient than paying income tax. However, a limited company requires more administration and may require a company secretary and an accountant. You must submit an annual company tax return and statutory accounts to HMRC, and you are responsible for paying employees’ income tax and NI contributions. For contractors, a limited company or an umbrella company is a more common structure than a sole trader due to potential legal issues related to employment status.
Limited liability partnership
An LLP (limited liability partnership) is a structure often used by professional services businesses like accountancy or legal firms. It's similar to a regular partnership, but offers limited liability like a limited company. To set up an LLP, it must be registered at Companies House and must have at least two "designated members" who are responsible for filing annual accounts.
Advantages of an LLP include that each partner registers as self-employed and is only liable for the face value of their share if the business fails. However, the administrative burden of an LLP is similar to that of a limited company, so it may require an accountant or company secretary.
Summary: An LLP is a good option for larger partnerships looking for the protection of limited liability.
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Limited Company Formation + Nominee Services
From £900
UK Private Limited Company
Fast Formation (2-hours)
100% Managed Formation (We do everything for you)
All Fees (There are no hidden charges)
London Registered Office Address
Director/PSC Service Address
Director Service Address
Digital mail forwarding from Companies House & HMRC
Digital Certificate of Incorporation
Digital Memorandum & Articles of Association
Digital Share Certificate
Digital First Board Meeting Minutes
UK Resident & British Citizen Nominee Director
Nominee Director Appointment Agreement
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