Legal Structure of Businesses

Legal Structures of Businesses

When setting up a business, you must choose the right legal structure to suit your start-up. As your business structure clearly defines your legal responsibilities, it’s essential to put the time into researching which structure is the best fit for you.

The Main Legal Structures of Business

There are four main legal structures of business – here is a brief summary:

Sole trader

If you work for yourself, you are classed as a self-employed sole trader. Sole traders run their start- up as an individual, which means you can keep all business profits once tax has been paid on them.

You are also personally responsible for any losses that your business may make.

Business partnership

If you choose to start your business as a partnership, you share all responsibility for your business with your business partner or partners. You can also share all business profits between the partners, with each partner paying tax for their share of the profits. A partner doesn’t have to be a person; a limited company can also be a partner in a business partnership.

In an ordinary business partnership, you are responsible for your share of any losses your business makes, as well as paying for anything you buy for your business, for example, new stock or essential equipment. Each partner is required to send a personal self-assessment tax return every year, pay national insurance and pay income tax on their share of profit.

Limited company

A limited company is an organisation that you can set up to run your business. This means that it is responsible for everything it does and all finances are separated from your personal finances. Profits that a limited company makes are owned by the company, once corporation tax has been paid. The company can then share out its profits.

Social enterprise

If you decide to start a business that is designed to help people or communities, you will still need to choose a legal business structure. This structure could be a charity, a limited company, a co- operative organisation or one of the other structures legally available.

Where do I start?

If you need help figuring out which structure will best suit your business, or for more information on the legal and tax responsibilities of each structure, contact Worcestershire Business Central today and we will put you in touch with a business adviser who will be able to help you make these important decisions.

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