When starting out in business one of the many decisions you’ll need to make is how you want to trade and you’ll need to take a close look at the different types of business ownership.
There are advantages and disadvantages to all types of business ownership, whether you’re a sole trader or business partnership, a limited company or even a franchisee, you’ll need to be on the ball when it comes to filing your financial returns.
Here you’ll find the key points for the different types of business ownership and there’s more detail on each within our guides.
Self-employed/sole traders
Setting up as a sole trader doesn’t mean that you have to work alone – you can still take on employees.
Characteristics of this type of business ownership:
- You have sole responsibility for your business.
- You can keep all of your profits after tax.
- You’re responsible for paying your own tax and must register for Self Assessment.
- You’re liable for your business debts, putting your personal wealth at risk.
Business partnerships
As a business partnership, you don’t need to register with Companies House, but that doesn’t mean you don’t have to file returns.
Characteristics of this type of business ownership:
- You can keep your share of the profits after tax.
- You’re responsible for paying your own tax and must register for Self Assessment.
- One of you must register the partnership with HMRC.
- You’re liable for your business debts, putting your personal wealth at risk.
Private Limited Companies
Setting up a private limited company you’ll need to register with Companies House. This doesn’t mean it’s difficult to set up – especially when you use the services of a formations agent.
Characteristics of this type of business ownership:
- You may be protected from higher personal income tax rates.
- You could take advantage of other tax savings.
- You’re not personally liable for business debts.
- You’ll need to file statutory annual accounts and a company tax return.
Public Limited Companies
A public limited company gives you the opportunity to offer shares in your business to the public. This doesn’t mean you have to!
Characteristics of this type of business ownership:
- You’ll benefit from tax savings and advantages.
- You’re not personally liable for business debts.
- There’s much more scope for finding investors.
- You’ll need to file statutory annual accounts and a company tax return.
Franchises
Taking on a franchise means you won’t have the set up involved in starting a new business from scratch.
Characteristics of this type of business ownership:
- You’ll be trading under an established brand.
- Learnings and processes will already be made for you.
- You’ll benefit from a ready-made network.
- You’ll have very little or no control over business direction or your profits.
As you can see the different types of business ownership come with their particular advantages and disadvantages. Before you set course on your business voyage, it is important to think about what each of them offers and how you and your business might benefit from it.
Forming a limited company is easy with The Formations Company and you can find out more about our packages here.