As a business owner or manager, you are at risk of being held liable for the actions of your business.
Choosing the wrong business structure can leave you open to personal financial liability if your business is sued.
Limited companies, limited liability partnerships (LLPs), and sole traders each present their own set of advantages and disadvantages which should be taken into account when deciding on a structure.
Limited companies
Limited companies offer more protection than LLPs or sole traders as they have a separate legal identity from their owners, meaning that any liabilities incurred by the company cannot be passed on to you or any other shareholders.
However, whilst you must keep your accounts in order for any business structure, limited companies are subject to more complex regulations.
As a limited company, you must be registered with Companies House, and the company’s information will be publicly visible.
Limited Liability Partnerships (LLP)
As the name suggests, an LLP allows you to limit your personal liability, as the LLP is viewed as a separate entity.
If you choose to begin an LLP, your partnership contract will outline your share, as well as how the profits will be shared between partners and how the company should be managed.
One consideration with an LLP is that there must be at least two members in the partnership. If you are starting an LLP with one other person, you need to ensure that neither of you wishes to leave the partnership.
Sole traders
Becoming a sole trader is the most straightforward way of becoming a business owner, and you will get to keep all the business’ profits.
But you will be subject to unlimited liability for your business’s debts.
As a sole trader, there is no legal difference between your private assets and the business’s assets. If your business does encounter legal issues, you will be personally responsible for these.
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