Business structures – which should I use?

Sole Trader

Operating as a sole trader is the simplest way to start a business. There are minimal formalities involved, with the main requirement being registration with HMRC as self-employed.

As a sole trader:

• You keep full control of the business

• All profits belong to you personally

• You pay income tax and National Insurance on business profits

• You must keep accurate business records

However, a sole trader business is not legally separate from the owner. This means you are personally liable for all business debts and obligations, which can place personal assets at risk.

Partnership

A partnership involves two or more individuals running a business together and sharing profits. Each partner contributes skills, resources, or capital to help grow the business.

Key features of a partnership include:

• Profits are shared according to an agreed ratio

• Each partner is taxed individually on their share of profits

• Similar tax treatment to sole traders

It is strongly recommended to have a formal partnership agreement to define roles, profit sharing, and exit arrangements. Like sole traders, partners have unlimited liability and are jointly and severally liable for business debts.

Limited Company

A limited company is a separate legal entity from its owners. It can own assets, enter contracts, and incur liabilities independently.

If you run a limited company:

• You are a shareholder and often a director or employee

• The company pays Corporation Tax on its profits

• Income can be taken as salary, dividends, or a combination

• Personal liability is limited to the value of shares invested

Limited companies offer greater flexibility for tax planning but involve additional responsibilities, including statutory accounts, company filings, payroll, and compliance obligations. Many businesses choose this structure for liability protection and scalability.

Limited Liability Partnership (LLP)

An LLP combines features of both partnerships and limited companies.

Key characteristics include:

• Limited personal liability for members

• Partnership-style taxation

• Company-style administration and reporting

LLPs are commonly used by professional firms and larger partnerships where shared ownership and limited liability are required, though they offer less tax flexibility than limited companies.

Co-Operative

A co-operative is a business owned and controlled by its members or employees. Profits are typically shared among members rather than external shareholders.

This structure requires specialist advice and is suited to specific business models. A well-known example is the John Lewis Partnership.

How Applegrow Can Help

Selecting the right business structure depends on several factors, including:

• Tax efficiency

• Legal liability

• Ownership and control

• Future growth plans

Applegrow Financial Advisors can review your circumstances, explain the advantages and disadvantages of each option, and help you choose a structure that supports your business goals while remaining fully compliant with UK tax and legal requirements.