Overview of business structures

Contents

  1. Sole trader
  2. Partnership
  3. Limited liability company
  4. Social enterprises
  5. Limited liability partnership (LLP)
  6. Franchise

Sole trader

The advantages of being a sole trader include:

  • independence
  • ease of set up and running
  • all the profits go to you

The disadvantages include:

  • a lack of support
  • unlimited liability
  • you are personally responsible for any debts run up by your business

Partnership

Similar to setting up as a sole trader, the advantages of being in a partnership include:

  • its ease of set up and running
  • the range of skills and experience that the partners can bring to the business

Problems can occur when there are disagreements between partners.

There is unlimited liability and, as a partner, you are personally responsible for any debts that the business runs up.

Limited liability company

In a limited liability company your personal financial risk will be restricted to how much you invest in the business, and any guarantees you have given in order to obtain financing.

Social enterprises

Social enterprises are businesses that:

  • trade for a social purpose, and
  • represent a diverse and growing range of business activity across the UK

Limited liability partnership (LLP)

LLPs retain the flexibility of a partnership and your personal liability is limited.

At least two members must be 'designated members' - the law places extra responsibilities on them.

Forming an LLP is more complex and costly than a partnership, Problems can occur when there are disagreements between the members.

If the number of partners is reduced, and there are fewer than two designated members, then every member is deemed to be a designated member.

You should remember that this type of company also brings a range of extra legal duties, including the maintenance of the company's public records, e.g. for the purpose of the filing of accounts.

Franchise

The major advantage of a franchise is that it takes advantage of the success of an established business and support networks.

Your freedom to manage the business is limited by the terms of the franchise agreement.

Also, franchisees often pay a share of their turnover to the franchiser, which reduces overall profits.