So, you have a great business idea and are ready to make it a reality. What’s stopping you from getting started right away?
One of the key decisions to make early on is how your business will be structured. This could affect the way it develops and functions in the future, so it’s important to put enough time and thought into the choice.
As we’ve previously covered some of the main questions to answer if you’re starting a business, this blog will cover some of the possible business structures in more detail.
Types of business structure
There’s no one way to determine the best startup business structure.
You’ll need to think about the number of people involved, the level of financial exposure you can take on, how much administration you want to handle, and how much finance you have to start with.
It’s also worth considering how you’d like to present yourself and your business.
For example, incorporating a business can sometimes make you appear more established and credible than operating as a sole trader.
This isn’t always a necessary move, so think carefully about what will suit you best.
Here are 4 common types of business structure you could consider.
This is a simple business structure, and the easiest to set up and manage. You’ll have relatively few reporting responsibilities outside of completing a self-assessment tax return every year.
However, as a sole trader, there’s no legal distinction between your personal finances and the business’ finances. This means you’ll be personally responsible for any debts if the business fails.
A partnership can be formed between 2 or more people, who share the profits and losses of the business.
This can be a good option if you’re setting up with people you know well, as it gives a small group of partners a high level of control over the business.
As with sole traders, operating as a partnership comes with the risk of liability, as partners will share responsibility for the business’ debts.
By forming a limited company, you create a legal entity that’s separate from the people who run it.
This means the business’ finances are separate from your personal finances, so you won’t necessarily be liable for any debt the business is in.
On the other hand, this structure means you’ll have more reporting and management obligations.
Limited liability partnership
A limited liability partnership (LLP) has a similar management structure to a partnership, with 2 or more people sharing responsibility for the business.
However, its legal status is more like that of a limited company. It is a legal entity in its own right, so partners in an LLP are not personally responsible for the business’ debts.
These are just a few of the ways you could think about structuring your business.
We can help determine which structure is best suited to your goals, as well as supporting you through each stage of starting a business.