This helpsheet gives you an outline of the different business structures you can trade through. Your business format is not set in stone forever and you can change between them. It is fairly simple for a sole trader to take on a partner and become a partnership and for a partnership to become a limited company. There are however more complications with changing from a limited company to a sole trader or partnership.
This is the simplest form of business to start where you carry on business on your own account. You are liable to income tax and Class 4 National Insurance on your profits. You can employ people including your spouse, as long as they are paid only for the value of work actually performed.
A partnership is two or more people carrying on business together with a view to making profit, although partnerships can also be formed between companies, or between and individual and a company.
The partners in a general partnership are all joint and severally liable for partnership debts, although this does not apply to personal tax bills based on partnership profits.
It is advisable to have a partnership agreement to document the business arrangements between the partners, including how profits will be shared and how partners will join and leave the partnership. Even a husband and wife partnership should have a written partnership agreement, as this can be used to show HMRC that both parties are actively involved in the business and have a right to share the profits.
A limited company is a separate legal entity from its owners. These are the basic facts…
LLP’s are treated like a normal partnership for tax purposes but the members of the partnership have the protection of Limited Liability.
A LLP is a separate legal entity and can enter into contracts and deeds, sue and be sued in its own name. With normal partnerships every partner has to be party to certain documents and litigation.
Floating charges can be granted over its assets in its own name, which normal partnerships can’t do. As with Limited Companies, the LLP must file annual accounts at Companies House together with certain other information.