Starting a business is exciting – full of possibility but also perhaps a bit daunting. One of your first key decisions is picking the right structure for your business. As an experienced adviser for small businesses, we know the business structure you choose impacts your taxes, liabilities and how easily you can grow your company.
This comprehensive guide explains the most common UK business structures, highlights their pros and cons, and outlines key considerations to help you make the best decision.
Sole trader – simplicity and control
The simplest structure is being a sole trader. It’s just you, running the business independently. Many small businesses start this way because it’s straightforward, with minimal paperwork.
Pros
- Easy and inexpensive to set up.
- You keep all your profits.
- Simple record-keeping and accounting requirements.
Cons
- You’re personally liable for debts, meaning your personal assets could be at risk.
- Less tax efficient if your earnings become high.
According to the Office for National Statistics (ONS), as of 2024, sole proprietors made up around 15% of all UK businesses, showing that while still popular, most businesses now choose to incorporate.
Partnership – sharing the load
If you’re starting a business with someone else, a partnership can work well. Partnerships share responsibility, profits and liabilities.
Pros
- Shared responsibilities, skills and investment.
- Relatively simple to set up.
- More potential capital from multiple partners.
Cons
- Unlimited personal liability, similar to sole traders.
- Potential for disagreements and disputes between partners.
Partnerships often work best when you clearly agree roles and responsibilities in a detailed partnership agreement. It’s smart to have this in writing from day one.
Limited liability partnership (LLP) – protecting your assets
An LLP is a blend of partnership and limited company structures. Partners still share profits but enjoy limited liability, protecting personal assets if the business runs into trouble.
Pros
- Limited liability protection for personal assets.
- Flexible internal structure and profit sharing.
Cons
- More administrative responsibilities, including filing accounts at Companies House.
- Public disclosure of financial accounts.
If your business carries higher financial risks, an LLP can offer much-needed peace of mind.
Limited company – professional image and growth opportunities
Forming a limited company means creating a separate legal entity. You own the company through shares, with your liability limited to your share capital.
Pros
- Limited personal liability protection.
- Tax-efficient, particularly as profits increase.
- A professional image can attract investment and clients.
- Potential to sell shares, raising further capital.
Cons
- Increased administrative and regulatory requirements.
- Obligations to publicly file accounts at Companies House and complete corporation tax returns.
Limited companies are popular for those aiming to scale their business or who want greater credibility. For the 2025/26 tax year, limited companies pay corporation tax at 25% on profits over £250,000.
Factors to consider when choosing a business structure
Selecting the right structure isn’t one-size-fits-all. You’ll need to consider the following.
Liability protection
Think about how comfortable you feel with risk. Structures offering limited liability reduce risk to your personal assets – reassuring if your venture carries substantial financial exposure.
Tax implications
Different structures have different tax advantages. Sole traders and partnerships pay income tax on their profits, whereas limited companies pay corporation tax, which may provide tax savings as your business grows.
Scalability and growth potential
If you’re planning significant growth or might seek investment in the future, a limited company often makes the most sense.
Administrative burdens
Simpler structures have fewer administrative duties, saving time and money on accounting and paperwork.
Steps to structuring or restructuring your business entity
If you’re just getting started or considering restructuring your business, follow these key steps.
- Assess your business needs: Consider your future plans and personal risk appetite.
- Consult a professional: A business adviser for small businesses can help you weigh up the pros and cons based on your situation. At Wells Associates, our business advisory services help you make informed choices.
- Register appropriately: Depending on your structure, register with HMRC or Companies House.
- Stay compliant: Ensure timely filing of accounts and tax returns to avoid penalties.
Changing your business structure – what’s involved?
Sometimes, the best decision is restructuring. Sole traders or partnerships often incorporate to become limited companies for growth and liability reasons. While restructuring is beneficial, it does require careful planning such as:
- valuing and transferring assets from old structure to new
- informing HMRC and updating your VAT registration, if applicable
- adjusting banking details, business stationery and marketing materials.
Our dedicated team at Wells Associates supports clients through restructuring, ensuring minimal disruption and maximum benefit.
Making the right choice matters
Choosing your business structure is foundational to your company’s future success. Whether you’re a sole trader valuing simplicity or setting your sights on a limited company for protection and growth, it’s worth taking time to get this decision right.
As a trusted business adviser for small businesses, we provide practical, straightforward support to make your choice clearer and easier. Whatever your ambitions, the right structure can help get you there quicker.
If you need tailored guidance to choose the best business structure, get in touch with us today – we’re here to help.