Business Structuring
Launching and growing a business is an exciting journey, but the decisions you make about business structuring will have long-lasting impacts on your operations efficiency, tax obligations, and legal responsibilities.
Whether you’re a start-up entrepreneur deciding on the best way to structure your new venture, or an established company considering a restructuring to align with growth, the stakes are high, and making the wrong choice can lead to unnecessary tax burdens, increased liabilities, and even missed growth opportunities.
Choosing the right business structure is more than just a legal formality, it’s a foundational decision that shapes the future of your business. The right business structuring can:
Offer tax advantages;
Limit personal liability from business debts and legal claims;
Make it easier to attract investors, secure funding, and scale your business operations;
Streamline your reporting and regulatory obligations;
Define roles and responsibilities for better governance and smoother operations.
That being said, selecting the right structure can be overwhelming as each comes with its own set of legal requirements and implications.
At Lawhive, our network of experienced corporate lawyers is on hand to guide you through the process of business structuring, helping you choose one that best suits your business goals and legal requirements.
When you work with us, we take the time to understand your business, offering bespoke advice and solutions that align with your operational, financial, and strategic objectives. From the initial consultation to drafting documents, we provide end-to-end support throughout your business structuring journey, so you can make informed decisions and set your business on the path to success.
Contact us today to schedule a free case evaluation with our legal assessment team and get a no-obligation quote for the services of a specialist lawyer.
What are the main types of business structures in the UK?
The main types of business structures in the UK are:
Sole trader
Partnership
Limited Liability Partnership (LLP)
Private Limited Company (Ltd)
Public Limited Company (PLC)
How do I choose the right business structure for my company?
Choosing the right business structure is an important decision that affects everything from day-to-day operations to taxes, liability, and your ability to raise funds. Therefore, key factors to consider include:
Liability
Structures like sole traders and general partnerships expose you to unlimited liability, meaning you’re personally responsible for business debts and legal obligations. In contrast, limited companies and LLPs provide limited liability protection, safeguarding your personal assets.
As such, you should consider the level of personal risk you are willing to take on factoring in industry risks.
Tax
Different business structures are taxed differently. For example, sole traders and partnerships pay taxes on their personal income, while limited companies pay corporation tax on their profits, and shareholders pay taxes on dividends they receive.
You should evaluate how each structure impacts your overall tax burden.
Administration and costs
Some structures are simpler and cheaper to set up and manage than others. Sole traders have minimal administrative requirements compared to limited companies, which need to comply with more regulatory obligations and filing requirements.
Control and management
You should also consider how much control you want to retain over the business. Sole traders and small partnerships offer the most direct control, while limited companies and LLPs often involve more complex governance structures.
This is particularly important if you plan to start your business with others as you need to consider how decisions will be made and conflicts will be resolved. Partnerships and LLPs also require clear agreements on roles, responsibilities, and profit-sharing.
Funding and investment
Limited companies, especially public ones, can more easily raise capital while issuing shares, while sole traders and partnerships may find it harder to attract investors because of higher personal risk and less formalised structures.
You should, therefore, think about whether your chosen business structure supports your long-term growth plans.
Exit strategy
If you plan to sell the business or transfer ownership, some structures make this easier than others. For example, shares in a limited company can be sold or transferred more easily than interests in a sole proprietorship.
To choose the right business structure, you need to clearly define your business goals, risk tolerance, and operational needs. You might also choose to speak with a corporate lawyer, accountant, or business advisor to help you weigh up the pros and cons of each structure.
What are the differences between a sole trader and a limited company?
Liability
As a sole trader, you and your business are legally the same. This means that you are personally responsible for all aspects of the business, including debts and liabilities.
A limited company, however, is a distinct legal entity from its owners. As such, shareholders’ liability is limited to the amount they have invested in the company, which means their personal assets are generally protected if the company faces financial difficulties.
Tax
As a sole trader, you pay tax through the self-assessment tax return process, whereas a limited company pays corporation tax on its profits.
Administrative responsibilities
Running a business as a sole trader involves less paperwork and simpler administrative tax. There are also fewer legal requirements to comply with compared to a limited company as they must comply with the Companies Act 2006 and file documents with Companies House.
Choosing between operating as a sole trader or setting up a limited company depends on your business goals, the level of risk you're willing to take, and how you plan to manage and grow your business.
At Lawhive, we provide expert legal advice to help you choose the right structure for your business. Our network of experienced corporate solicitors can guide you through the pros and cons of each option, ensuring you make an informed decision that aligns with your goals and needs.
Contact us today to schedule a free case evaluation and receive a no-obligation quote for our services.
What are the advantages and disadvantages of setting up a partnership?
A partnership is a popular business structure in the UK where two or more individuals share ownership, responsibilities, and profits.
The advantages of setting up a partnership include:
Shared resources and expertise;
Shared responsibility for workload;
Ease of formation and flexibility;
Direct taxation and no double taxation;
More funding sources.
The disadvantages of setting up a partnership include:
Personal risk as each partner is liable for debts and obligations;
Joint liability for each other’s actions;
Potential for disputes over business decisions, management styles, and direction;
Shared profits;
Limited growth potential;
Succession and continuity issues due to the loss of a partner, transitioning ownership, or adding new partners.
What is a limited liability partnership and how is it different from a general partnership?
A Limited Liability Partnership (LLP) is a hybrid business structure that combines elements of both partnerships and companies. It allows partners to enjoy the flexibility of a partnership while offering the benefit of limited liability similar to a company.
Both LLPs and general partnerships involve partners coming together to run a business, they differ in terms of liability, legal status, and operational flexibility.
| LLP | General Partnership |
Liability Protection | The LLP itself is responsible for its debts and liabilities, not the individual partners. | Partners have unlimited personal liability. This means they are personally responsible for all the business’s debts and obligations. |
Legal Status | An LLP is a separate legal entity from its partners, similar to a company. It can own property, sue, and be sued in its own name. | A general partnership does not have a separate legal identity. The partners and the business are legally the same entity. |
Formation and Compliance | LLPs must be formally registered with Companies House. This involves filing an incorporation document and meeting specific legal requirements. | General partnerships can be formed without any formal registration process. They often come into existence through a verbal agreement or simple written contract between partners. |
Management and Flexibility | LLPs provide flexibility in management and profit-sharing. Partners can agree on how to run the business and share profits in their partnership agreement. | General partnerships are also flexible but typically less so than LLPs due to the risk of personal liability. |
In summary, LLPs offer limited liability protection and a separate legal status, making them a safer option for personal assets and a more formal business structure. However, they come with more compliance requirements. General partnerships, on the other hand, are simpler and more flexible but expose partners to unlimited personal liability.
Can a company change its structure after it has been registered?
A company can change its structure after it has been registered. For example, many entrepreneurs start as sole traders but choose to incorporate as a limited company as their business grows.
To change a company's structure, you might need to draft and file specific documents, such as creating a Memorandum and Articles of Association, and file the necessary documents with the appropriate authorities - usually Companies House.
There are specific steps for common changes to company structure that you must follow. At Lawhive, our network of experienced corporate lawyers can provide the expertise and guidance you need to do this quickly and smoothly.
Contact us today to schedule a free case evaluation and get a no-obligation quote for the services of a specialist lawyer in our network.
Do I need a solicitor to help set up or restructure my business?
Setting up or restructuring a business involves several legal and procedural steps. While it’s possible to handle some or all of these tasks on your own, you might need a solicitor to:
Help you understand the implications of different business structures;
Guide you through the process of changing from one structure to another;
Draft, review, and file documentation, such as Articles of Association, partnership agreements, or shareholder agreements;
Identify potential risks and mitigate them;
Review contracts with supplies, customers, and employees;
Provide guidance on corporate governance;
Register your company with Companies House;
Help you get the necessary licenses and permits required to operate legally in your industry;
Handle disputes and challenges.
What should I look for when selecting a solicitor to assist with business structuring?
The right legal partner can provide guidance and support when setting up or restructuring your business. Here’s what you should consider when selecting a solicitor for business restructuring.
Relevant experience and knowledge
You should choose a solicitor who specialises in corporate law, especially in areas related to business structuring, company formation, and corporate governance. They should have a comprehensive knowledge of the different types of business structures (e.g., sole trader, partnership, LLP, limited company) and their legal, tax, and operational implications.
Reputation
Check for positive reviews and testimonials from previous clients. These can provide insights into the solicitor’s capabilities, client service, and success in handling similar cases.
Communication and responsiveness
Your solicitor should be able to explain legal issues and options relating to business structuring without using excessive jargon to make sure you understand the process. They should also be committed to providing regular updates and be proactive in keeping you informed about the progress of your matter.
It’s also important to feel comfortable with your solicitor, as you’ll need to trust their advice and judgment.
Costs
Solicitor’s fees can vary based on whether they charge hourly rates or fixed fees. Before committing to working with a legal professional, you should understand their fee structure and ensure it aligns with your budget.
At Lawhive, we pride ourselves on providing transparent pricing with no hidden fees. So you always know how much you're paying and feel confident you won’t get hit with any additional expenses along the way. Contact us now for a free quote.
How does the choice of business structure impact the ability to raise capital?
Your choice of business structure can influence your ability to raise capital by determining the level of attractiveness to investors, the available funding sources, and the perceived risk and stability of your business:
Sole traders: Limited to personal savings and loans, with high personal risk and limited external investor appeal.
Partnerships: Can pool partners’ resources but face challenges in attracting external investors due to unlimited liability.
LLPs: Offer limited liability and flexibility in partner contributions but may struggle with significant external investment due to the lack of share issuance.
Private Limited Companies: Provide strong opportunities for raising capital through share issuance and equity financing, appealing to both investors and lenders.
Public Limited Companies: Access substantial capital through public share offerings, attracting a broad range of investors and offering both equity and debt financing options.
When forming a limited company in the UK, you need to:
Choose a unique company name with the appropriate suffix based on your company type;
Create a Memorandum of Association and Articles of Association;
Appoint directors;
Appoint a company secretary, if necessary;
Decide on shareholders and share capital;
Register your company’s address;
Complete and submit the incorporation documents to Companies House;
Register your company for corporation tax with HMRC within three months of starting business activities;
Register for other taxes such as VAT, PAYE, and National Insurance contributions (if applicable);
Keep statutory registers up to date and maintain records of all directors’ and shareholders’ decisions;
Submit a confirmation statement to Companies House at least once a year;
File annual accounts with Companies House and a company tax return with HMRC.
What are the costs associated with setting up and maintaining different business structures?
The costs of setting up and maintaining a business vary significantly depending on the chosen structure. Each business structure has its own set of financial obligations related to formation, compliance, and ongoing operations. Here’s an overview of the costs associated with the most common business structures in the UK:
Sole trader
As a sole trader, there are no formal registration fees with Companies House. You only need to tell HMRC that you’re self-employed.
Other costs you may have to pay include:
Accountant fees;
Business insurance (like public liability or professional indemnity insurance);
Expenses for office space, utilities, marketing, etc.
Partnership
Like sole traders, partnerships do not have to register with Companies House (unless they are LLPs). However, it’s highly recommended to create a formal partnership agreement to outline the terms of the partnership. A solicitor can do this and legal fees for drafting this agreement can range from £200 to £1,000.
Other costs to consider in a partnership include:
Accountant fees;
Public liability, employer’s liability, and professional indemnity insurance;
Operational costs like rent, utilities, salaries, etc.
Limited Liability Partnership
Registering an LLP with Companies House costs £12 for online registration or £40 for postal registration. Further, legal fees for drafting an LLP agreement can range from £300 to £2,000.
Other costs to consider when establishing an LLP include:
Annual filing fees;
Accounting fees;
Public liability, employer’s liability, and professional indemnity insurance;
Operational costs like rent, utilities, salaries, etc.
Private Limited Company
Registering a private limited company with Companies House costs £12 for online registration or £40 for postal registration. Same-day registration is available for £100.
While you can use model articles provided by Companies House, bespoke articles and shareholders’ agreements can incur costs from £200 to £1,500 or more.
Other costs to consider when establishing a private limited company include:
Public Limited Company
PLCs also have more complex requirements, often needing extensive legal and financial advice. Initial costs for setting up a PLC can range from £1,000 to over £10,000, including legal fees for drafting extensive corporate documents and advisory fees.
Further, if listing on a stock exchange, there are fees for underwriting, legal compliance, and listing fees.
Other costs to consider when establishing a public limited company include:
At Lawhive, we provide affordable and expert legal support for businesses at all stages. Our network of experienced solicitors can guide you through the setup and maintenance of your chosen business structure, ensuring compliance and cost-efficiency.
Contact us today to schedule a free case evaluation and receive a no-obligation quote for our services.
What is the role of a company secretary in different business structures?
For sole traders, there is no requirement for or role of a company secretary. Instead, the sole trader is responsible for all aspects of the business.
For private limited companies and partnerships (including LLPs), appointing a company secretary is optional, but many companies do appoint one to handle regulatory compliance and administrative tasks.
For public limited companies, appointing a company secretary is mandatory because of the increased scrutiny and regulatory requirements involved.
What are the risks of not choosing the appropriate business structure?
Choosing the wrong business structure can expose your business to significant risks across various areas, including:
Potential risk to personal assets in the event of business failure or legal claims;
Tax implications;
Operational inefficiencies and decision-making hurdles;
Risk of non-compliance and associated penalties;
Disputes and loss of control over business decisions;
Impacts on brand reputation and business relationships.
As you might imagine, limited companies and PLCs have stringent compliance requirements, including filing annual accounts, and confirmation statements, and following corporate governance standards.
How can Lawhive help with business structuring?
Launching and growing a business is an exciting journey, but the decisions you make about business structuring will have long-lasting impacts on your operational efficiency, tax obligations, and legal responsibilities. The right structure can help you streamline operations, minimise taxes, and protect your assets, while the wrong choice can lead to unnecessary complications and financial risks.
Whether you’re a startup entrepreneur deciding on the best way to structure your new venture or an established company considering a restructuring to align with growth, choosing the appropriate business is a foundational decision that shapes the future of your business.
At Lawhive, our network of experienced corporate lawyers is on hand to guide you through the process of business structuring. We help you choose the structure that best suits your business goals and legal requirements.
Why choose Lawhive?
When you work with us, we take the time to understand your business, offering bespoke advice and solutions that align with your operational, financial, and strategic objectives. From the initial consultation to drafting documents, we provide end-to-end support throughout your business structuring journey, so you can make informed decisions and set your business on the path to success.
Contact us today to schedule a free case evaluation with our legal assessment team and get a no-obligation quote for the services of a specialist lawyer.