What are the various types of business structures in the UK?

When establishing a business in the UK, you have several legal structure options depending on the nature and scale of your venture. In this article, we cover the key business structures available in the UK and provide guidance on choosing the best option based on your business needs, liability considerations, and tax implications.

How to choose the right business structure for your company

One of the most important decisions you’ll make when starting a business is choosing the right legal structure. In the UK, you have several options, including sole trader, partnership, private limited company (Ltd), and limited liability partnership (LLP).

The best structure for you depends on factors such as liability, taxation, and record-keeping requirements. Your choice will impact how you run your business, including legal responsibilities, tax obligations, and control over decision-making.

It’s essential to research thoroughly and select the structure that best aligns with your business needs and financial goals. Our guide explains the different forms of business structures there are to help you make an informed decision.

Which business structures exist?

There are several different business structures, but most fall into one of the following legal forms:

• Sole Trader
• Partnership
• Limited Liability Partnership (LLP)
• Limited Company (Private Limited Company - Ltd)

We’ll explore each of these structures in more detail. There is no universally ‘right’ or ‘wrong’ choice—select the option that best suits your business needs and goals.

Sole trader

A sole trader (often called a sole proprietorship in other countries) is the simplest and most common business structure in the UK. It’s quick and easy to set up and has fewer administrative requirements compared to other business structures.

How to set up as a sole trader

To operate as a sole trader, you must:

• Register for Self Assessment with HM Revenue & Customs (HMRC) if you earn more than £1,000 from self-employment in a tax year.
• Keep records of income and expenses for tax purposes.
• Submit a Self Assessment tax return each year.

You can trade under your own name or choose a business name, but the business is legally not separate from you as an individual.

Taxation and financial responsibilities

As a sole trader, your business profits are taxed as personal income, meaning you are required to pay Income Tax and National Insurance Contributions (NICs) on your earnings. The amount you owe depends on how much profit you make, and you must report it via an annual Self Assessment tax return. Many business expenses, such as travel, office supplies, and marketing costs, are tax-deductible, which can help reduce your taxable income. However, since there is no legal distinction between you and your business, you are personally responsible for any debts or financial obligations incurred by the business.

Advantages and disadvantages of a sole trader structure

Is a sole trader structure right for you?

A sole trader structure is a great choice if:

• You are running a small business with low setup costs.
• You don’t need to borrow large sums or take on major investors.
• You want full control over decision-making.

However, personal liability is a major risk. If your business incurs debt or faces legal action, your personal assets (such as your house and savings) may be at risk. Before choosing this structure, consider the potential risks and whether a limited company might offer better protection for your business.

Partnership

A partnership is a business structure where two or more people share responsibility for running a business. It is similar to a sole trader structure in its flexibility but involves multiple owners. Partnerships are often chosen when individuals trust each other and want to share decision-making, profits, and liabilities.

One of the key benefits is shared responsibility, which can help if one partner is ill or wants to take time off. However, all partners are personally liable for any debts the business incurs, even if the debt is caused by another partner.

How to set up a partnership

To set up a general partnership, you must:

• Choose a business name (or use the partners’ names).
• Appoint a nominated partner responsible for keeping records and managing tax returns.
• Register the partnership with HM Revenue & Customs (HMRC).
• Each partner must register as self-employed and file their own Self Assessment tax return.

If a partner’s profits exceed certain thresholds, they will need to pay National Insurance Contributions (NICs):

• Class 2 NICs if profits exceed £6,725 per year.
• Class 4 NICs if profits exceed £12,570 per year.

Partnership Agreement

A partnership agreement is not legally required but is highly recommended to prevent disputes. It should outline:

• The names of all partners.
• A description of the business.
• Each partner’s investment, liability, and profit share.
• What happens if the partnership is dissolved or a partner leaves.

Without a formal agreement, the partnership follows the Partnership Act 1890, which may not reflect the partners’ intentions.

Liability and risks

A general partnership has unlimited liability, meaning:

• Each partner is personally liable for all debts.
• If one partner causes financial losses, all partners are equally responsible.
• The partnership can be dissolved at any time unless an agreement states otherwise.

Advantages and disadvantages of a partnership

Is a partnership the right structure for you?

A partnership is a good choice if:

• You want a simple and cost-effective business structure.
• You prefer shared decision-making and responsibilities.
• You want a business structure that is more attractive to lenders than a sole trader setup.

However, unlimited liability can be a significant risk, and disputes between partners can affect business operations. If limiting liability is a concern, you may want to consider a Limited Liability Partnership (LLP) instead.

Limited Liability Partnership (LLP)

A Limited Liability Partnership (LLP) is a hybrid business structure that combines the flexibility of a partnership with the limited liability of a company. Unlike a general partnership, an LLP is a separate legal entity, meaning partners are not personally liable for the business’s debts beyond their investment.

This structure is commonly used by professional services such as law firms, accountancy firms, and consultancy businesses, where multiple partners operate the business together while limiting their personal financial risk.

How to set up an LLP

To set up an LLP, you must:

• Register the business with Companies House.
• Have at least two designated members (partners) responsible for regulatory compliance and tax filings.
• Submit an LLP agreement outlining partner roles, responsibilities, and profit distribution.
• Register for Self Assessment and Corporation Tax (if applicable).
• File annual confirmation statements and financial accounts with Companies House.

LLP Agreement

An LLP agreement is a legally binding contract that governs how the partnership operates. It should cover:

• The names and roles of all partners.
• How profits, losses, and liabilities are shared.
• The decision-making process within the LLP.
• Procedures for adding or removing partners.
• What happens if the LLP is dissolved.

Without an LLP agreement, the business operates under the Limited Liability Partnerships Act 2000, which may not align with partners’ expectations.

Liability and risks

Unlike a general partnership, an LLP provides limited liability, meaning:

• Partners are not personally responsible for the LLP’s debts.
• Liability is usually limited to each partner’s financial contribution to the business.
• If the LLP becomes insolvent, members’ personal assets are protected, unless they have provided personal guarantees.

However, LLP members can still be held liable for wrongful or fraudulent trading if found guilty of financial misconduct.

Advantages and disadvantages of an LLP

Is an LLP the right structure for you?

An LLP is ideal if:

• You want limited liability but still prefer a partnership structure over a company.
• You operate a professional service business (e.g., legal, financial, or consulting services).
• You need a structure that allows for flexible profit-sharing among members.

However, higher administrative requirements and public disclosure of financial accounts make LLPs less suitable for small businesses that prefer minimal paperwork. If your business requires significant external investment, a private limited company (Ltd) might be a better option.

Limited company (Ltd.)

A limited company is very different from the sole trader and partnership structures because it is considered a separate legal entity from its owners. This means the business is its own ‘legal person’ in the eyes of the law. A limited company offers limited liability, meaning that shareholders are not personally responsible for business debts or losses.

Ownership and control

A limited company is owned by its shareholders, and its management is handled by directors. If you want to run the business alone, you can retain 100% of the shares, giving you full control while benefiting from a more secure structure. This setup can also be tax-efficient, depending on your earnings and how you withdraw money from the business.

Taxation and financial responsibilities

Unlike sole traders, limited companies only pay tax on their profits. Instead of Income Tax, businesses pay Corporation Tax, which is currently 25% (as of 2025 but may be lower for smaller profits.

• Directors can take a salary and withdraw additional profits as dividends, which are subject to a lower tax rate than regular income.
• A limited company is more attractive to lenders and investors, increasing the chances of securing funding.
• Companies must file annual accounts and Corporation Tax returns with HM Revenue & Customs (HMRC) and Companies House.

Public record and privacy

One downside to running a limited company is the lack of privacy. Certain company details, including:

• The company’s financial records,
• The names of directors and shareholders,
  are publicly available on the Companies House register.

Advantages and disadvantages of a limited company

Is a limited company the right structure for you?

A limited company can be a great option if:

• You want tax efficiency compared to sole trader status.
• You want to limit your personal liability for business debts.
• You need more credibility for securing clients, investors, or loans.

However, be prepared for higher administrative requirements, accounting costs, and public disclosure of company information. If you prefer a simpler structure with fewer obligations, sole trader or LLP status might be more suitable.

Is it possible to change my business structure later?

How easy it is to change your company’s structure depends on factors such as VAT registration and whether you have employees. To make the change, you must complete the necessary steps to transition to the new structure and inform HMRC accordingly. If your business is VAT-registered, you must notify HMRC within 30 days of the change to avoid potential penalties. You can either cancel your VAT registration and re-register under the new structure or transfer your existing VAT registration to the new entity. This process can be completed online or by post. If you have employees, the transition can be more complex, as payroll and tax obligations must be transferred correctly. In this case, you should contact HMRC for guidance. For more details, visit GOV.UK’s guide on changing your business.

Please note the legal disclaimer for this article.