There are advantages and disadvantages to how every business trades, so it's about deciding which is best for you.  Below is a guide to the business types that people set up:

  • Sole Trader
  • Business Partnership
  • Communty Interest Companies (CIC)
  • Limited Companies (Ltd)
  • Limited Liability Partnership

Sole Trader

A sole trader, or sole proprietor is the term used to describe a business that is owned and controlled by one person who makes all the decisions, responsibilites and profilts.  A sole trader will often describe themselves as being self employed.

Becoming a sole trader is easy to do, there are just a few forms to fill in and you can effectively start trading straight away.  Other advantages are that you may only need a small amount if capital (money to put into the business).  It's easy to keep overall control as it's only you and you keep 100% of the post-tax profits.

However as a sole trader if things don't turn out as planned you are personally liable for any debts. This is known as 'unlimited liability'.  The business relies upon you and your continued good health and can often involve long hours.

For more information on setting up as a sole trader
click here (external link)

Business Partnership

A business partnership is where two or more people own the business.  In such cases an agreement is drawn which states the responsibilities of the various partners, for example the capital invested of each partner and profits allocation.

One of the main advantages of a partnership is that the responsibilites and the day to day running of the business is shared.  Workloads are shared and if one of the partners was to fall ill or wanted a holiday, the other partner(s) can take up the strain.

A partnership, like a sole trader, has 'unlimited liability' meaning that all the partners are personally responsible for business debts.

However there may be differences of opinion and occassionally a partner may not be pulling their weight sufficiently which may lead to frustration and resntment on all sides.  For thid reason it is important that partners draw up a suitable partnership agreement in order to avoid disputes over the distribution of profits.

For more information on starting a business partnership click here (external link)

Limited Companies 

A Limited Company has it's own legal identity with ownership usually divided amongst the shareholders of the business.  The main advantage of a limited company over a sole trader or partnership is that the owners have 'limited liability', meaning that owners are not personally liable if things go wrong.

For more information on setting up a Limited Company click here (external link)
Social Enterprises and Community Interest Companies

A Community Interest Company (CIC) is similar to a Limited Company save that the assets are only owned by the company and their are limitations applied to dividend and interest payments to ensure a profit can be made, but the primary focus remains on achieving benefit for the community.

Forming either a limited or community interest company requires more form filling than a sole trader or partnership as there are a number of statuatory obligations to be considered.

For more information on Social Enterprises
click here(external link)

Limited Liability Partnership (LLP)

A limited liability partnership combines elements of both a partnership and a limited company where some or all of the partners have limited liability.  Setting up a LLP involves complex legal arrangements and requires detailed consultation.

For more information on Limited Liability Partnerships
click here (external link)

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Different Business Types


When you're taking the first steps in setting up your business you need to think about the legal structure for your business and as your business grows you may need to consider changing it's legal structure.

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