What are the Different Business Legal Structures?

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There are several common business legal structures you can choose from for your business set-up.  Which one you choose is going to depend on what kind of business you are setting up, who else is involved in this plan with you, your own personal preferences, among several other factors.

Too many people equate starting a business to registering a company with Company House (UK).  I remember asking someone about his business. The first thing he said to me was, “Oh, I registered my company about five years ago”. When I asked him if he was trading, his answer was No! I just had to gently remind him that registering a company is not the first step to starting a business.  There is a lot more thoughts and actions that need to precede the registration – if needed at all.   I have quite a number of clients who operate as sole traders, and the structure works for them.

Starting a business does not mean you have to form a limited liability company. I made that mistake about 10 years ago when I had this sudden desire to start a business.  The plan never materialised, but I was burdened with annual returns and all the paperwork that comes with company registration. I did not need to be told to make the company dormant after the filing was getting out of hand.

biz-legal-2 (What are the Different Business Legal Structures?)

To get it right, here is a quick overview of a few options:

Sole Trader

This is one of the most common business structures, particularly for small businesses that are just starting out.  Sole Trader means that one person owns and is responsible for the business.  They make all the decisions, but they also hold all the financial responsibility.  The profits or losses from the business will be reported on the owner’s personal taxes.

Partnership 

A structure very similar to a sole proprietorship, except that there is more than one person involved in owning and operating the business.  The business is still connected to you, but also to your partners.  This means you all share in the management and financial responsibilities of the business.

Limited Liability Company

This is a very popular type of business structure because it offers a number of benefits and tax savings too does not require a lot of the same hassle.  Unlike a limited liability partnership, you can set up this structure with only one person. It provides a lot of the financial protection and does not require as extensive measures to keep.

Limited Liability Partnership (LLP)

This is another partnership, but it also provides some of the financial protection of a limited liability company.  A LLP must have at least two partners.  It is not as tedious to maintain as it is made out to be, as long as both partners have mutual understanding of their roles within the business.   This business structure is much more common in the UK.

How you set up your business is an important decision.  The structure you choose could make a big financial and legal difference. The tax implications, accounting fees and other requirements are also worth considering. It will depend on many factors, including local regulations.  Take the time to research your options and talk to an accountant or other business professional and anyone else involved in your business before making your decision.  

I wish you business blessings.

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