BUSINESS - SOLE TRADER, LIMITED COMPANY OR PARTNERSHIP - HOW TO DETERMINE YOUR BEST BUSINESS STRUCTURE - ISSUE 21 - JULY 19

Oct 29, 2026

A practical guide for business owners selecting the most suitable business structure, especially when starting out or becoming self-employed. It explains how a sole trader and a partnership work in terms of tax treatment, personal liability, responsibilities, and administrative burden. It also introduces limited liability partnerships (LLPs) as a hybrid option that limits personal liability while requiring registration, filings, and ongoing compliance, highlighting costs and operational implications.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages16

Reading Time40 min

AccessFree to download

Introduction

Sole Trader

Partnerships

Limited Liability Partnerships (LLPs)

Limited Companies

Starting Out

Changing your Structure

Key Considerations

Taking Advice

About Us

Compliance Statement

BUSINESS SOLE TRADER, LIMITED COMPANY OR PARTNERSHIP? HOW TO DETERMINE YOUR BEST BUSINESS STRUCTURE Independent Financial Advisers-Financial Life Planners ISSUE 21 | JULY ‘19 Independent Financial Advisers-Financial Life Planners BUSINESS SOLE TRADER, LIMITED COMPANY OR PARTNERSHIP? HOW TO DETERMINE YOUR BEST BUSINESS STRUCTURE CONTENTS Introduction 4 Sole Trader 5 Partnerships 5 Limited Liability Partnerships (LLPs) 6 Limited Companies 7 Starting Out 8 Changing your Structure 8 Key Considerations 10 Taking Advice 13 About Us 14 Compliance Statement 16 Contact Us 16 3 4 Introduction A key decision for all business owners, especially when starting a business, or becoming selfemployed for the first time, is to decide what type of business structure to use. There are several options which essentially fall into four key alternatives: • Sole trader • Partnership • Limited liability partnership (LLP) • Limited company Other options may exists for social enterprises that are looking to benefit the community; but these are not covered in this guide. UNDER THE SOLE TRADER STATUS, YOU AND YOUR BUSINESS ARE EFFECTIVELY ONE AND THE SAME. . . YOU CAN EVEN EMPLOY OTHER PEOPLE Sole Trader The sole trader or self-employed route is the easiest structure to use. Under the sole trader status, you and your business are effectively one and the same – from both a tax and legal perspective and you are personally responsible for the business. This includes any and all of your business debts. The profits you make until the 5th April of each year are declared on your tax return and classed as your personal income that year. You must pay income tax and national insurance on this at standard income tax rates. You do not need to register the business anywhere, but you should tell HMRC that you are in operation and self-employed for tax purposes. You must do this within three months of becoming self-employed. National Insurance contributions are usually lower asa sole trader. However, you will be entitled to fewer social security benefits. The administrative burden is far lower than the alternatives. You keep simple, unaudited accounts which list and record your business income and expenditure. You can form a limited company – or partnership – later down the line and transfer the business toit (though in some circumstances stamp duty may have to be paid). Sole traders can employ people. Partnerships A partnership arrangement is similar to that of a sole trader but differs in that it is a business owned by two or more people. All partners own a specified percentage of the profits paying tax on that percentage. As with a sole trader, each partner’s share of the profits is treated as their income. Partners, like sole traders, are generally considered and taxed as self-employed. As a member of a partnership you will be personally or jointly liable for any debts incurred. This means that if another partner is unable to pay, you become liable for their share of any business debts. National Insurance contributions are usually lower asa member of a partnership than as an employee of a limited company. However, you will be entitled to fewer social security benefits. You may be able to raise money for your business by introducing new partners. Business contracts entered into by one partner can be binding even if the other partners have not consented. As a partnership the risks of the business and the management responsibilities, decisions etc. will be shared. This will almost always mean it is sensible and prudent to draw up a comprehensive partnership agreement—this will help avoid disputes. On a positive note it will enable partners to stipulate who does what and the dividing lines when it comes to day to day functions and activities. It’s a good idea to get a solicitor or professional adviser to draw up a suitable agreement. A good, comprehensive partne

FAQs

What are the four main business structure options covered in this guide?

The guide focuses on sole trader, partnership, limited liability partnership (LLP), and limited company. It notes other alternatives for social enterprises are not covered.

How does personal responsibility and liability differ under a sole trader structure?

Under sole trader status, the individual and business are effectively the same for tax and legal purposes. The person is personally responsible for business debts, including all debts.

What makes an LLP different from a standard partnership?

An LLP is described as a hybrid of partnership and limited company features, allowing partnership-style flexibility while limiting personal liability for business debts. It also requires registration with Companies House and annual accounts filing.

Oct 29, 2026

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