It’s been a while since we have written about the best accounting and reporting structure for a new business. As many people are now starting their own businesses, we wanted to run through some of the pros and cons of the three most common types of company structure.

It’s important to set up the best company structure for your business as it helps with being clear about who makes decisions within the company and impacts how much tax you pay. In some cases, businesses do change company structure after they have been operating for a while, but ideally, if you can identify the best company structure from the start-up does make it easier for you.

Sole trader

If you decide to operate as a sole trader, this is the easiest way to get started. It doesn’t cost much to set up the business. You just need to register with HMRC – Set up as a sole trader. Once you start the business, you can keep all the profits, and you just need to submit an annual tax return.

However, it’s important to note that you would be personally liable for any business debt because there is no distinction between you and your business. Raising finance can also be harder if you are looking for loans or investors. From a tax perspective, you have the same tax status as an individual so you may pay more tax than a Limited Company.

Limited Company

If you set up a Limited Company, you limit risk to your assets. So, if your company goes into debt, this does not affect you personally (unless personal guarantees exist). Setting up a Limited Company takes a bit longer, and there is more work to do when you submit your annual accounts as you need to register with Companies House. This company structure can, however, be more tax efficient than operating as a sole trader.

Another key reason that this company can be beneficial is that it can be easier to access funding, and if your customers are large corporates or public sector, being a Limited Company can add commercial credibility.

Partnerships

Setting up as a partnership is a good approach if you have between two and twenty people that want to take shared responsibility for the business. As with a sole trader, it is relatively easy to set up and start the company; you just need to register with HMRC – Set up a business partnership. As there are more people involved in the partnership, it can often be easier to raise funds, and you can take a shared responsibility in running the business.

However, if there are any disagreements between the partners, this can lead to difficulty in operating the business, so it is helpful to get a partnership agreement in place at the start. Also, the partner's liability for the business's debts is unlimited.

If you are thinking of starting a business and would like some advice on which company structure will be the best one for you, then please contact us by calling 01623 490 120 or by emailing This email address is being protected from spambots. You need JavaScript enabled to view it.