{"id":1024,"date":"2021-12-29T05:15:52","date_gmt":"2021-12-29T05:15:52","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=1024"},"modified":"2025-07-02T00:42:23","modified_gmt":"2025-07-01T23:42:23","slug":"best-business-structure","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/business-structures\/best-business-structure\/","title":{"rendered":"Which Structure is Best for My Business in England or Wales?"},"content":{"rendered":"\n<p><span style=\"font-weight: 400\">If you are a business owner or interested in starting a business, it is important to know how to structure your business for maximum benefit. For instance, you might want to limit your personal liability or raise outside investments.&nbsp;<\/span>Notably, there are many business structures to choose from. <\/p>\n\n\n\n<p><span style=\"font-weight: 400\">This article will explore:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the four main types of business structures;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">their advantages and disadvantages; and&nbsp;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the difference between incorporated and unincorporated businesses.<\/span><\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Unincorporated vs Incorporated Businesses<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">The most basic distinction between different business organisations is whether they are <a href=\"https:\/\/legalvision.co.uk\/corporations\/benefits-of-incorporation\/\">incorporated or unincorporated<\/a>.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">The two unincorporated business structures we will look at are:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">sole traders; and<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">partnerships.<\/span><\/li><\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">The two incorporated businesses we will look at are:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">private limited companies; and<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">limited liability partnerships.<\/span><\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Unincorporated Businesses<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">Unincorporated businesses do not require any formal steps to come into existence. They automatically arise whether you intend for them to or not. This can be advantageous because there are no formalities or paperwork necessary. You just start trading.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">The most important legal distinction you should be aware of when it comes to an unincorporated business is that it does not have a separate legal existence from its owner(s).&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">An Example<\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Suppose that you have a work van, which you only use for work. You have a home, which belongs to you and your husband. You have recently received \u00a320,000 worth of building materials from a supplier for a construction job you are running and use them for a job. However, you have not received payment from your client. You also owe a mortgage on your house.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">You might keep them separate, for example, when balancing your books:<\/span><\/p>\n\n\n\n<figure class=\"wp-block-table lv-table lv-table--style-1\"><table><tbody><tr><td><b>Trade Accounts<\/b><\/td><td><b>Personal accounts<\/b><\/td><\/tr><tr><td><span style=\"font-weight: 400\">Work van &#8211; \u00a39,000<\/span><\/td><td><span style=\"font-weight: 400\">Your home &#8211; \u00a3350,000<\/span><\/td><\/tr><tr><td><span style=\"font-weight: 400\">Materials \u2013 (\u00a320,000)<\/span><\/td><td><span style=\"font-weight: 400\">Mortgage \u2013 (\u00a3340,000)<\/span><\/td><\/tr><tr><td><span style=\"font-weight: 400\">\u00a311,000<\/span><\/td><td><span style=\"font-weight: 400\">\u00a3,10,000<\/span><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><span style=\"font-weight: 400\"><span style=\"font-size: revert\">But in fact, the law sees it as:<\/span>&nbsp;<\/span><\/p>\n\n\n\n<figure class=\"wp-block-table lv-table lv-table--style-1\"><table><tbody><tr><td><b>Your personal accounts<\/b><\/td><\/tr><tr><td><span style=\"font-weight: 400\">Work van &#8211; \u00a39,000<\/span><\/td><\/tr><tr><td><span style=\"font-weight: 400\">Your home &#8211; \u00a3350,000<\/span><\/td><\/tr><tr><td><span style=\"font-weight: 400\">Materials \u2013 (\u00a320,000)<\/span><\/td><\/tr><tr><td><span style=\"font-weight: 400\">Mortgage \u2013 (\u00a3340,000)<\/span><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><span style=\"font-weight: 400\">The effect is that there is nothing between your business\u2019 assets and liabilities and your personal assets and liabilities. Hence, if you injure someone during your trade and you are sued, except for any insurance policy, you could lose your house to cover a liability you incurred through your business.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Sole Traders<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">This is the most common kind of unincorporated business in the UK, with more than 3.5 million active sole traders. You could be selling luxury watches, cutting hair, or babysitting, and unless you have taken other steps, you are automatically carrying on as a sole trader.<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">While no registration is necessary, you are personally liable to <a href=\"https:\/\/www.gov.uk\/government\/organisations\/hm-revenue-customs\">HMRC<\/a> to account for your tax liability.<\/span><\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Partnerships<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">When two or more people operate some enterprise with a common view to make a profit, a partnership will arise automatically. There are over 45,000 such partnerships in the UK, sometimes called \u201cordinary partnerships\u201d or \u201cunincorporated partnerships.\u201d<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">The <\/span><i><span style=\"font-weight: 400\">Partnership Act <\/span><\/i><span style=\"font-weight: 400\">governs partnerships. This legislation is vital to note because unless there is an express agreement (written or oral) containing the terms of the partnership \u2014 which is to say, the duties one partner owes the rest and vice versa \u2014 the actual terms of the partnership will be implied by the <\/span><i><span style=\"font-weight: 400\">Partnership Act.<\/span><\/i><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">S<\/span>ince <span style=\"font-weight: 400\">the legislation is over 130 years old, many implied terms are outdated and unusual. As one example, if you want to remove a partner, you will need the consent of every partner in the partnership, including the one you want to remove.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Additionally, unincorporated partnerships cannot own assets in the partnership\u2019s name. Practically, any sort of asset like an office or piece of machinery you want to use to make a profit will be purchased in your partners\u2019 names and be held \u201con trust\u201d for the other partners.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Liability in a Partnership<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Like sole traders, each partner has unlimited liability for any debts or obligations the partnership incurs because the partnership is not incorporated. Moreover, each partner is liable for any debts any other partner incurs.<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">For example, suppose you and your friend run a house painting business, and he spills paint in a client\u2019s house. In that case, the client could choose to go after you in full to recover the amount in damages. This is the biggest disadvantage to such partnerships. Of course, you can limit some of the negative effects of unincorporated partnerships through indemnity agreements. This is where one party promises to pay the other party back if he does something improper (like spill paint), and you end up on the hook.<\/span><\/p>\n<\/div>\n\n\n\n<p><span style=\"font-weight: 400\">Therefore, if you think you are operating some sort of enterprise with another person, at the very least, you ought to try and both agree to a formal partnership agreement. You can complete this agreement through a simple contract signed by each partner.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--star\">\n<p><span style=\"font-weight: 400\">A well-crafted partnership agreement is a flexible business structure, which is why some large law firms still use it.<\/span><\/p>\n<\/div>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                            Call <a href=\"tel:+448081968584\" class=\"not-prose\">0808 196 8584<\/a> for urgent assistance.\n                <br>\n                Otherwise, 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This means that if your company is incorporated, it can:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">enter into its own agreements;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">own its own assets;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">assume its own liabilities; and&nbsp;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">sue and be sued.<\/span><\/li><\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">In most cases, those who own the company and those acting on behalf of the company will not assume liability for its debts, though they will share in its profits.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">The two incorporated businesses we will look at are:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">private limited companies; and<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">limited liability partnerships.<\/span><\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Private Limited Companies<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Compare private companies to <a href=\"https:\/\/legalvision.co.uk\/startups\/startup-public-private\/\">public companies<\/a>, which are companies whose shares can be sold to the public. In practice, most companies start as private companies, and some later become public. Public companies have much more onerous reporting and regulatory requirements.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">There are two kinds of private limited companies, but the only relevant one is the \u201cprivate company limited by shares.\u201d<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Private companies are owned by their shareholders. The more shares each shareholder owns, the more of the company they own. If you are currently a sole trader and incorporate your company, you will be the only shareholder unless you bring on other investors.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">As a shareholder, liability in your company is limited to the value of your shares in the company. These shares are also known as equity. Hence, if the company can no longer pay its debts, the shareholders are only ever liable for the amount of equity they have in the company.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">An Example<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Suppose that you wish to incorporate a company. Upon filing the necessary paperwork, you transfer \u00a3100,000 of your own money into the company. In exchange, you decide to issue yourself 10 shares.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">The value of the company is now worth \u00a3100,000 (or \u00a310,000 per share).<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">If the company begins to trade, and in a year through hard work, the \u00a3100,000 has grown to \u00a3150,000. You still have ten shares, but now each is worth \u00a315,000. Your equity will have grown by 50%.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">You decide to declare the \u00a350,000 as profit and pay yourself a dividend (after paying corporate tax). The company is now back to where you started.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Suppose in the next year, your company cannot trade because of a pandemic, and you made no money while now also owing all of your suppliers a total amount of \u00a3120,000. In that case, the bad news is that a<\/span> court will likely put your <span style=\"font-weight: 400\">company into administration (bankruptcy for a company). Likewise, t<\/span>hey will distribute all<span style=\"font-weight: 400\"> the remaining assets<\/span> <span style=\"font-weight: 400\">to your suppliers.<\/span><\/p>\n\n\n\n<p>This is no doubt unfortunate<span style=\"font-weight: 400\">. The \u00a350,000 (less corporate tax) is of no real consolation because you lost half of what you put in. However, the real benefit of the private company reveals itself when you learn that your creditors cannot come after you, in your personal capacity, for the remaining \u00a320,000 (unless you behaved fraudulently).<\/span><\/p>\n\n\n\n<div  class=\"box box--icon box--info\">\n    <p>Thus, limited liability refers to the fact that you owe no more than the value of your equity in the company. Likewise, you can claim the full amount (less taxes) of your share in any profit.<\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Considerations&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">The UK\u2019s tax system is quite favourable towards limited companies, especially when there is only one shareholder.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">The disadvantage is that <\/span>there are strict regulations for<span style=\"font-weight: 400\"> limited companies<\/span>. Likewise<span style=\"font-weight: 400\">, they require a good amount of paperwork to create and a lot of responsibility to maintain. A good amount of the information is public, including your name as a shareholder and your address (if you own 25% or more of shares).<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">For small companies, if you are the only shareholder, you must also act as the director. An exception is if you choose to hire someone to be a director. Being a director requires substantial obligations, duties, and responsibilities. It is not a duty to assume lightly.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Limited Liability Partnerships<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">These are relatively new business structures that combine the flexibility of partnerships with the limited liability of a limited company. You have to be in partnership with at least one other person. Therefore, you cannot set one up if you are to be the sole partnership.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\"><a href=\"https:\/\/legalvision.co.uk\/corporations\/limited-partnership\/\">Limited liability partnerships<\/a> (LLPs) are flexible because you and your partners are free to decide the terms of the agreement, such as profit sharing and the duties you owe one another.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Each of the partners is not liable for any of the liabilities the partnership incurs because of the principle of limited liability explained above.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Partners are taxed as if they were in an ordinary partnership.<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">Most LLPs are large professional service firms like accountants and law firms.<\/span><\/p>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Key Takeaways<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">Unincorporated business structures come about naturally. If you are already making money in your own capacity, you are a sole trader. Likewise, you have a partnership if you and a friend run a weekend business painting houses for some beer money. They are beneficial because they are flexible and require no formalities or administrative upkeep (except for keeping on top of your taxes). The downside is that your personal assets are not separate from the company. If a third party<\/span> sues your <span style=\"font-weight: 400\">business or your business owes money, your personal assets are liable. <\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">To limit your liability, you can incorporate as a limited company or, if it is you and another, a limited liability partnership. Your personal assets will be safe from your business debts. The downside is the administrative obligations and responsibilities that come with being a director. What is best for you depends on the size of your business and your long-term plans.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">If you need help choosing between the different business structures, our <a href=\"https:\/\/legalvision.co.uk\/business-lawyers-lp\">experienced business lawyers<\/a> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <\/span><a href=\"https:\/\/legalvision.co.uk\/membership\"><span style=\"font-weight: 400\">membership page<\/span><\/a><span style=\"font-weight: 400\">.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Frequently Asked Questions<\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1640754264335\"><strong class=\"schema-faq-question\"><strong>What is an incorporated business?<\/strong><\/strong> <p class=\"schema-faq-answer\">An incorporated business is where your business has a separate legal existence from you. That means it can own property, owe money, sue others, and be sued. The effect is that your liability for your company\u2019s debt is limited.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1640754348143\"><strong class=\"schema-faq-question\"><strong>Which of the different business structures should I adopt?<\/strong><\/strong> <p class=\"schema-faq-answer\">Most people either trade as a sole trader, in partnership with another, through a limited company, or through a limited liability partnership.\u00a0\u00a0<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"9eb4f72322\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/1024\" \/>            <input value=\"https:\/\/legalvision.co.uk\/business-structures\/best-business-structure\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"Which Structure is Best for My Business in England or Wales?\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>If you are a business owner or interested in starting a business, it is important to know how to structure your business for maximum benefit. For instance, you might want to limit your personal liability or raise outside investments.&nbsp;Notably, there are many business structures to choose from. This article will explore: the four main types<a href=\"https:\/\/legalvision.co.uk\/business-structures\/best-business-structure\/\">Continue reading <span class=\"sr-only\">&#8220;Which Structure is Best for My Business in England or Wales?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13461,"featured_media":664,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"1707,4279,171811,4587,1001,1747","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[36],"tags":[20,21,90,148,151,152],"class_list":["post-1024","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-structures","tag-small-business","tag-medium-business","tag-company","tag-business-structure","tag-sole-trader","tag-partnership"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Which Structure is Best for My Business | LegalVision UK<\/title>\n<meta name=\"description\" content=\"Looking to start a business in England or Wales? 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