Types of Business
 There are four main ways to set up a business in the UK. Only you can decide which is the best for your business:
- sole traders (there is only one kind)
- partnerships (there are two main kinds)
- companies (there are four main kinds)
- cooperatives (there are two main kinds)
Sole trader
How many people can/must be involved?
A sole trader is typically a one-person business. (They may employ others if they want but they are in sole charge of the business.)
What is the set up process?
Register with the Inland Revenue as self-employed.
What kind of financial reporting must be done?
Annual self-assessment return to Inland Revenue.
Who pays if the business gets into trouble?
You do. Outstanding debts may have to be met from your personal assets.
What are the overall plus points?
Independence, and easy to set up and run.
What are the overall negative points?
Lack of support and unlimited liability.
Register with the Inland Revenue
Self Assessment
Partnership - with unlimited liability
How many people can/must be involved?
Two to twenty (there are some exceptions to the maximum of twenty) people can join as partners in a business
What is the set up process?
Each partner registers with the Inland Revenue as self-employed. A legally binding partnership agreement is recommended.
What kind of financial reporting must be done?
Annual self-assessment return to Inland Revenue.
Who pays if the business gets into trouble?
Each partner is responsible for any other partner's debts as well as their own.
What are the overall plus points?
Easy to set up and run.
What are the overall negative points?
Unlimited liability and need to share decision making.
Register with the Inland Revenue
Self
Assessment
Limited Liability Partnership (LLP)
How many people can/must be involved?
Two to twenty (there are some exceptions to the maximum of twenty) people can join as partners in a business
What is the set up process?
Each partner registers with the Inland Revenue as self-employed.
The LLP incorporates at Companies House.
What kind of financial reporting must be done?
Annual return and accounts to Companies House, and a self-assessment return to Inland Revenue.
Who pays if the business gets into trouble?
The partners have a liability for debts, but only up to a certain amount.
What are the overall plus points?
As easy to set up and run as a partnership, and liability is limited.
What are the overall negative points?
The administration of submitting annual return and accounts, just like a company, plus some other restrictions.
Register with the Inland Revenue
Companies House
Private company, limited by shares
How many people can/must be involved?
There must be at least one director and a company secretary - however, a one-member company is possible.
What is the setup process?
The company incorporates at Companies House.
What kind of financial reporting must be done?
Annual return and accounts to Companies House, and Corporation Tax self-assessment returns to Inland Revenue.
Who pays if the business gets into trouble?
The member(s) are liable for the amount they have not yet paid on shares they own in the company.
What are the overall plus points?
- Limited liability
- A well-known legal basis for working with others
- Easy to sell your part of the business to someone else
What are the overall negative points?
- The administration of submitting annual return and accounts, which can be read by others, plus some other restrictions
- Need to share decision making
Corporation
Tax Companies House
Private company, limited by guarantee
How many people can/must be involved?
There must be at least one director and a company secretary - however, a one-member company is possible
What is the setup process?
The company incorporates at Companies House
What kind of financial reporting must be done?
Annual return and accounts to Companies House, and Corporation Tax self-assessment returns to Inland Revenue.
Who pays if the business gets into trouble?
The member(s) agree how much they will be liable for in advance of any problems
What are the overall plus points?
- Limited liability
- A well-known legal basis for working with others
- Easy to sell your part of the business to someone else
What are the overall negative points?
- The administration of submitting annual return and accounts, which can be read by others, plus some other restrictions
- Need to share decision making
Corporation Tax
Companies House
Private unlimited company
How many people can/must be involved?
At least two people become members, and there must be at least one director and a company secretary.
What is the setup process?
The company incorporates at Companies House.
What kind of financial reporting must be done?
Annual return and accounts to Companies House, and Corporation Tax self-assessment returns to Inland Revenue.
Who pays if the business gets into trouble?
The members have unlimited liability.
What are the overall plus points?
Well-known legal basis for working with other, and easy to sell your part of the business to someone else.
What are the overall negative points?
All the obligations of a company as well as unlimited liability.
Corporation Tax
Companies House
Public Limited Company (plc)
How many people can/must be involved?
At least two people become member, and there must be at least two directors and one secretary.
What is the setup process?
The company incorporates at Companies House, and you must have
at least £50,000 in paid-up share capital.
What kind of financial reporting must be done?
Annual return and accounts to Companies House, and Corporation Tax self-assessment returns to Inland Revenue.
Who pays if the business gets into trouble?
The members are liable for the amount they have not yet paid on shares they own in the company.
What are the overall plus points?
- You can sell shares to members of the public to raise money for the business
- Limited liability
- Easy to sell your part of the business to someone else
What are the overall negative points?
- The administration of submitting annual return and accounts, plus some other restrictions
- Need to share decision making with public shareholders
Corporation Tax
Companies House
Cooperative
How many people can/must be involved?
Three or more people if you register through the Financial Services Authority; or you can register as a company following cooperative principles (see notes about companies above), in which case only two or more people are needed.
What is the setup process?
You register with the Financial Services Authority under the Industrial and Provident Societies' Act 1965.
What kind of financial reporting must be done?
Typically members are employees and taxed under PAYE; public records go to the Financial Services Authority.
Who pays if the business gets into trouble?
Each person has limited liability, usually to the value of shares they hold.
What are the overall plus points?
- Focus on mutual support and training
- Limited liability
What are the overall negative points?
- Democratic decision making requires a high level of commitment from every member.
- If you register under FSA, you must meet cooperative principles and have at least three member.
Companies House
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