The way you organise a business affects ownership, liability, administration and tax. It can sometimes be changed later, but a change may itself create costs and obligations.
Start with the people involved, the risks of the activity, funding needs and plans for taking money out. A tax comparison is only one part of the decision.
Sole trader
A sole trader carries on business in their own name rather than through a separate company. The profits form part of the individual’s tax position, and the owner is responsible for the business’s debts.
You can employ staff while trading this way. Keep business records and consider the registrations and responsibilities that apply to the activity.
General partnership
A partnership allows people to carry on a business together. Partners can be personally responsible for partnership debts, making the choice of partners and the agreed arrangements important.
A written partnership agreement should explain how profits are shared, who makes decisions and what happens when someone joins or leaves. This is useful even where the partners are family members.
Limited company
A limited company is a separate legal entity. Shareholders own it and directors run it. The company’s money and obligations need to be distinguished from those of its owners.
Limited liability can protect shareholders, but personal guarantees or a director’s own actions can create personal exposure. Do not assume incorporation removes every business risk.
A company can provide a framework for different ownership interests and investment. It also brings company-law responsibilities, accounts and filings, and additional administration. Tax on company profits and tax on money taken out of the company both need to be considered.
Limited liability partnership
An LLP combines a separate legal entity and limited liability with a partnership-style structure. It also has accounting and filing responsibilities. Its treatment and suitability need to be assessed for the particular members and business.
Look at the complete arrangement
Compare control, expected profits or losses, administration, borrowing and future ownership plans. Closing or changing a structure may be more complicated than setting it up.
Combining different structures should not be treated as a shortcut: ownership, tax and VAT consequences need a review of the whole arrangement.
Use the GOV.UK business structure overview as a starting point. Our incorporation calculator can illustrate one defined comparison, while our company formation service can help you discuss the wider decision.