Should My Business Be Ltd, LLP or a Sole Trader?
Posted: Tuesday March 26 2019
By: Needle Partners
Ltd, LLP or a Sole Trader. Starting a business can be a daunting prospect and one of the first decisions faced by any budding entrepreneur relates to the choice of legal structure that your business will take. There are many different structures through which a company can operate including franchises, co-operatives, public limited companies, companies with unlimited liability and community interest companies. However, while this article does not set out an exhaustive list of all your options, the four most common business models are registering as a sole trader, forming a partnership, incorporating a limited company and incorporating a limited liability partnership (LLP).
Ltd, LLP or a Sole Trader – Advice on starting a business – What company structure should I use?
As the name implies, a sole trader is essentially a self-employed person who is the sole owner of their business.
This is the simplest way to set up a business as you don’t need to set up a company at Companies House to run your business through (although you will need to register with HMRC so that you can file an annual tax return in respect of your business). Operating as a sole trader also gives you greater privacy than a limited company would receive as your details won’t be freely available at Companies House.
However, when you are a sole trader there is no legal distinction between you and your business. This means that you are personally liable if the business goes into debt and as such your personal assets will be under threat if things go wrong. It can also be harder to raise finance as a sole trader, as banks and other investors tend to prefer lending to limited companies and the tax rates on sole traders are often less kind as they are on limited companies.
A partnership is simply an extension of the sole trader structure whereby two or more self-employed may decide to work together. Partners in a partnership will share in all aspects of the business, including sharing in any profits that the partnership makes. However, as with sole traders, partnerships do not enjoy the benefits of limited liability, meaning that they will also share the liability between them if the company goes into debt.
If you are considering entering into a partnership, it is very important that you enter into a partnership agreement which will set out how the business is to be run, how profits will be shared and what the mechanism for resolving a dispute between the partners is should the need arise.
# Ltd, LLP or a Sole Trader