{"id":4587,"date":"2022-06-29T07:30:40","date_gmt":"2022-06-29T06:30:40","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=4587"},"modified":"2025-07-02T00:41:19","modified_gmt":"2025-07-01T23:41:19","slug":"sole-trader-partnership-company","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/business-structures\/sole-trader-partnership-company\/","title":{"rendered":"Difference Between a Sole Trader vs Partnership vs Company"},"content":{"rendered":"\n<p><span style=\"font-weight: 400\">There are different ways to structure a business, including becoming a sole trader, partnership, or company. Choosing the right business structure is a crucial decision that impacts various aspects of your business, including liability, taxation, and administrative responsibilities. Each structure offers unique benefits and drawbacks, and understanding these can help you make an informed decision that aligns with your business goals and risk tolerance.<\/span> This article will explain these three concepts, what these terms mean, how they differ from one another, and what they mean for your business.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Limited Liability and Business Structures&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">If your business benefits from limited liability, it simply means that the business owner (i.e. you) is not liable for the business&#8217;s debts. Limited liability is closely connected to the concept of legal personhood. It refers to the presumption that unless there is an agreement that says otherwise, Person C is not responsible for Person A&#8217;s liability to Person B.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Importantly, the law treats companies as having a legal personality. Much like natural people, they can:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">own property;\u00a0<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">enter into contracts;\u00a0<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">assume liabilities;\u00a0<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">enforce rights against other persons through the law; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">account to other persons for obligations and liabilities owed to them.\u00a0<\/span><\/li>\n<\/ul>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">Companies benefit from limited liability. On the other hand, sole traders and certain partnerships neither exist as their own legal person nor do they benefit from limited liability.<\/span><\/p>\n<\/div>\n\n\n\n<p><span style=\"font-weight: 400\">This distinction and the concept of limited liability are essential when considering which business structure to choose. The next section considers each of the three business structures.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Sole Traders<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">A <\/span><a href=\"https:\/\/legalvision.co.uk\/business-structures\/legal-considerations-operating-business-sole-trader\/\"><span style=\"font-weight: 400\">sole trader<\/span><\/a><span style=\"font-weight: 400\"> is anyone who does business without taking proactive steps to trade through another business structure. In other words, sole traders are the default business structures for individuals running their own businesses.\u00a0<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Limited Liability<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Sole traders do not benefit from legal personhood or limited liability. Therefore, your business is not a separate entity from you. Accordingly, you remain liable for all of your business\u2019 debts. It does not matter if you keep <a href=\"https:\/\/legalvision.co.uk\/startups\/separate-bank-account\/\">separate business bank accounts<\/a> or keep your business property separate from your personal property.\u00a0<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">The practical consequence is that if your business cannot meet a business liability, your personal assets are at risk. For instance, say you own a pottery-making business. You leave your kiln on one night and you burn down the building. The damages are \u00a31m, and you have \u00a3500,000 in your business bank account. To satisfy the debt, a judge can order you to sell your house and hand over your life savings to meet the remainder. This is the principal risk of trading as a sole trader.<\/span><\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Other Considerations&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">As a business structure, a sole trader is beneficial for small businesses with limited risk. Besides accounting to <\/span><a href=\"https:\/\/www.gov.uk\/government\/organisations\/hm-revenue-customs\"><span style=\"font-weight: 400\">HMRC<\/span><\/a><span style=\"font-weight: 400\"> for your taxes, you do not have any particular administrative responsibilities.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Likewise, you pay income tax at your personal rate \u2014 not the company tax rate. For most businesses with a single owner and no employees, provided the business is not engaged in high-risk activities, a sole trader may be sufficient.&nbsp;<\/span><\/p>\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, complete this form, and we will contact you within one business day.\n                    <\/span>\n    <\/div>\n\n    \n\n<div class=\"not-prose flex 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As the name suggests, LLPs benefit from legal personhood and limited liability, whereas GPs do not. In addition, you must incorporate LLPs through Companies House, whereas GPs arise automatically under certain conditions.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Creating a GP<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Like sole traders, GPs arise automatically. That is, if certain conditions are fulfilled, the law will imply a GP on a business regardless of whether you intended for a GP to exist. These conditions are:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">where two or more people engage in an enterprise; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">that each party acts in such a way as to share in the enterprise&#8217;s profits and losses.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">This has two practical effects:<\/span><\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">you cannot have a partnership if you are the only owner; and\u00a0<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">you cannot claim a partnership with another person if the other person does not share in the profits (i.e. is treated as an employee and paid a wage).<\/span><\/li>\n<\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Limited Liability<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">A GP is not its own legal entity and, therefore, does not benefit from limited liability. Consequently, the rules regarding personal liability for a business\u2019 debts apply to GPs as they do for sole traders.\u00a0<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Additionally, you are liable for your partners\u2019 conduct. For example, if a partner does something in the course of business that results in causing harm to someone else. Then, each of the other partners can be sued in their personal capacity.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Ownership<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Importantly, ownership is quite complicated because a partnership has more than one owner (i.e. two or more partners). However, your partnership cannot own property because it is not a legal entity. Generally, the law regards that the partner owning property holds it in trust for all other partners.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Partnership Agreements<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Most partnerships will begin with a <\/span><a href=\"https:\/\/legalvision.co.uk\/business-structures\/partnership-agreement\/\"><span style=\"font-weight: 400\">formal partnership agreement<\/span><\/a><span style=\"font-weight: 400\">. A partnership agreement is a contract that sets out the terms of the relationship each partner owes the other. One of the benefits of a partnership is that you and your partners can all refine the terms to your liking. In this respect, it is more flexible than a company, which must abide by company law.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">However, absent of any formal partnership agreement, the law will imply its own terms to each of the partners, including:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">the obligation to treat each partner fairly;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">to act in the best interests of the partnership;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">to share in the profits and losses equally; and\u00a0<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">to reimburse any partner for any personal loss.<\/span><\/li>\n<\/ul>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">Importantly, when creating a partnership, each partner should seek independent legal advice on drafting the partnership agreement.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Administrative Burden<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Similar to sole traders, you do not have to register your GP with the government. While you do have a general duty to keep the partnership\u2019s finances in good standing, the extent of any administrative burden will depend on what terms are in your partnership agreement.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">The partnership\u2019s income is taxed based on the profits each partner takes. That is, your account to HMRC individually, and the partnership itself is not taxed.\u00a0<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Companies<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">There are a few different types of companies. However, the most common one is the private company limited by shares \u2014 simply called a private limited company.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">The company\u2019s founders must <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/incorporate-a-company-england-wales\/\"><span style=\"font-weight: 400\">incorporate the business<\/span><\/a><span style=\"font-weight: 400\"> as a company to bring it into existence. This is done by filing certain forms with <\/span><a href=\"https:\/\/www.gov.uk\/government\/organisations\/companies-house\"><span style=\"font-weight: 400\">Companies House<\/span><\/a><span style=\"font-weight: 400\">. You can also purchase a company off the shelf and transfer the business assets to the company.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Limited Liability<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">A private limited company benefits from limited liability. It is its own legal person. Therefore, neither its shareholders nor directors will be liable for its debts unless there is unlawful conduct.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Ownership and Management<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">A company is owned by its shareholders (also called members). A share represents a portion of ownership in the company. Accordingly, the company structure is suitable for business growth because you can issue shares in exchange for cash.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Most shareholders are entitled to vote on important matters and receive a portion of any post-profit dividends the directors authorise.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Unlike a partnership, the company&#8217;s owners do not necessarily manage the company. Instead, directors manage the day-to-day and are the individuals who act on the company&#8217;s behalf. For small businesses trading as companies, founders will usually be both shareholders and directors.\u00a0<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">The Company Constitution<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">To incorporate a company, you must adopt a constitution, including the <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/articles-of-association\/\"><span style=\"font-weight: 400\">associations&#8217; articles<\/span><\/a><span style=\"font-weight: 400\">. The articles set out the terms that will govern the company, including the rights of shareholders and the responsibilities of directors.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Company law also governs companies. Where there is a conflict between the company\u2019s constitution and certain matters of company law, company law takes priority.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Administrative Burden<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Companies have a substantially higher administrative burden compared to the other two business structures. The burden falls on the company directors. Indeed, the law imposes numerous <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/directors-duties\/\"><span style=\"font-weight: 400\">duties on company directors<\/span><\/a><span style=\"font-weight: 400\">. If a director breaches one or more of these duties, they risk substantial civil and criminal liability.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Also, your business must file annual company accounts. Any time the shareholders approve a change to the company\u2019s constitution, the directors must notify Companies House.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Key Takeaways&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">Sole traders, partnerships, and companies are different business structures. A business structure is a legal framework under which a business operates. In other words, the law treats each business structure differently because they operate through different legal frameworks. There are other business structures that businesses can use in addition to these three. Still, the vast majority of small and medium businesses in England and Wales either trade as a sole trader, partnership, or company. Each has its advantages and disadvantages. The business structure right for your business will depend on your particular circumstances.\u00a0<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">If you need help navigating the legal implications of operating as a sole trader, our experienced <\/span><a href=\"https:\/\/legalvision.co.uk\/business-lawyers-lp\"><span style=\"font-weight: 400\">business lawyers<\/span><\/a><span style=\"font-weight: 400\"> 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&nbsp;<\/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-1656483774793\"><strong class=\"schema-faq-question\"><strong>What is a sole trader?<\/strong><\/strong> <p class=\"schema-faq-answer\">A sole trader is anyone operating a business where they are the sole owner and have not incorporated the business into its own legal person. As such, they have unlimited liability for the business\u2019 debts and obligations.\u00a0<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1656483801787\"><strong class=\"schema-faq-question\"><strong>What is a company?<\/strong><\/strong> <p class=\"schema-faq-answer\">The most common type of company is a private company limited by shares. This business structure has its own legal personality, meaning it can own assets, enter into contracts, sue and be sued. A company\u2019s shareholders are its ultimate owners, but the shareholders are not liable for the company\u2019s obligations in excess of their shareholding in the company.\u00a0<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1656483869174\"><strong class=\"schema-faq-question\"><strong>What is a partnership?<\/strong><\/strong> <p class=\"schema-faq-answer\">A partnership is any business structure where the law treats the owners as partners. The most common form is a general partnership, which is an unincorporated business structure with unlimited liability. This means that you can be sued for your partners\u2019 conduct and that the partnership itself does not own any assets.<\/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\/4587\" \/>            <input value=\"https:\/\/legalvision.co.uk\/business-structures\/sole-trader-partnership-company\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"Difference Between a Sole Trader vs Partnership vs Company\" 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>There are different ways to structure a business, including becoming a sole trader, partnership, or company. Choosing the right business structure is a crucial decision that impacts various aspects of your business, including liability, taxation, and administrative responsibilities. Each structure offers unique benefits and drawbacks, and understanding these can help you make an informed decision<a href=\"https:\/\/legalvision.co.uk\/business-structures\/sole-trader-partnership-company\/\">Continue reading <span class=\"sr-only\">&#8220;Difference Between a Sole Trader vs Partnership vs Company&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13461,"featured_media":3211,"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":"2268,3682,1835,2235,1197,4295","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[36],"tags":[20,21,90,151,152,223,342],"class_list":["post-4587","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-structures","tag-small-business","tag-medium-business","tag-company","tag-sole-trader","tag-partnership","tag-large-business","tag-limited-liability"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Sole Trader vs Partnership vs Company | LegalVision UK<\/title>\n<meta name=\"description\" content=\"A sole trader, partnership or company are the three most common ways to structure your business in England. 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