Business Structure

Now, which direction do I take?

Would it be better for you to be self employed or a director of a limited company is a question that we are asked time and time again. There is no simple answer but each of the alternatives has advantages and disadvantages.

Sole Trader – self employed

This is a business owned by one person. Legally the business and the person are one and the same. All financial risks are taken by that person and all that person’s assets are included in the risk.

If you are self employed you need to keep careful records. You must define personal transactions (e.g. taking goods from your own stock) and if you are working from home you should be careful about apportioning what is for business and what is for private use.


A partnership is a business run by two or more people together. There should be a written agreement detailing this arrangement. Profits are usually shared between the partners according to the agreement. Although profits may be apportioned unequally, liabilities which may arise are shared jointly.

Limited Companies

Unlike a sole trader or partnership, a limited company is a legal entity in its own right. It can sue and be sued. The Directors and Shareholders have limited liability. When a Limited Company is created it will issue shares and the nominal value of these shares will determine the shareholders liability. If shares have been issued then shareholders are not liable for any debts that the company may accrue – unless personal guarantees are given. Liability under insolvency rules may occur if it is considered that the company is being traded whilst insolvent with no prospect of the company being returned to solvency.



The Limited Liability Partnerships Act 2000 created a new type of business entity, the Limited Liability Partnership (LLP). Whilst the LLP offers limited liability to its members, it is treated for tax purposes in the same manner as a partnership. It is a separate legal entity from its members. Therefore, it may enter into contracts, sue and be sued and grant charges over its assets in its own name.

A LLP can be set up through Companies House who will retain a register of its members. Like Limited Companies, a LLP must file accounts with Companies House within nine months of its year end, which will be available to the general public.

Like a partnership, the members of a LLP are taxed on their share of the LLP profits and gains. LLP’s were primarily intended for use by the professions i.e. Solicitor/Accountant, however any business operating for profit may use a LLP.