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Understanding the UK’s legal company structures

If you want to form a UK company, there are several options available. This is good news, because it means that you can choose the right company structure for you and your business. Here, we explain the main legal structures that you can choose between:

Sole trader

Most people start out as sole traders. They begin working on their own, and opt to be self-employed. For this kind of worker, being a sole trader is the perfect set up.

Sole traders pay tax on their whole income after expenses, and get to keep all of the remaining profit. Once you get a little busier, you can employ other people and still keep your sole trader status.

You need to file a self-assessment tax return and pay income tax and National Insurance. If your turnover is more than £81,000 a year, you also have to register for and pay VAT. Should the firm run into legal problems and be sued, the sole trader will have to settle using the financial assets of their business and their personal assets, so there are some risks involved in being a sole trader.

Limited company

A limited company usually has members that own shares in the venture, and a director is responsible for the company.

Should the business get into trouble, the assets of the company are used to deal with the situation rather the business owner’s personal assets. In other words, their liability is limited.

Often, a limited company will be more tax efficient. The profit belongs to the company, and everyone involved in the firm is paid as an employee. Shareholders, if there are any, are paid a dividend.

It is possible for one person to incorporate a private limited company (Ltd) and assume the roles of both shareholder and director. If you want to form a Public Limited Company (PLC), you will need at least one other person because there needs to be at least two directors at all times.

Business partnerships

With business partnerships, you and at least one other person shares legal and personal responsibility for the business. The profits are shared between the partners, and each partner pays tax on their part of the profit. With this kind of business, the partners have responsibility for any losses and for paying any business bills.

It is possible to set up a limited liability partnership (LLPs) or a limited partnership to reduce your responsibility for losses. With limited partnerships, partners are only liable for debts or losses up to the amount they originally invested in the business.

If you are thinking of setting up a business, it makes sense to find out more about company structures. Doing so will enable you to choose the right one for you.

Posted by Louise
February 3, 2015
Features

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