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In the UK, there are several different types of company you can set up – a sole trader, Ltd company, LLP, CIC, charity and more. We break down the distinctions between the most common types of businesses with some pros and cons to each structure.
There’s no ‘right answer’ to which business type you should choose for your first enterprise. It is, however, a decision you should consider very carefully; after all, your company structure affects everything: from tax to funding, to legal and personal risk.
We recommend taking your time to evaluate and choose the right company type for your short-term and long-term goals.
Sole traders run the company as an individual.
It’s ideal for freelancers, consultants and small local businesses but it can be harder to raise funds than as a Limited company.
Ltd companies are a separate legal entity.
They require at least 1 director and 1 shareholder, although they can be the same person.
Profits can be paid out to shareholders as dividends.
Any 2 or more individuals or Ltd companies can form an LLP.
LLPs are ideal for professional partnerships such as accountants, solicitors and consultants but they are less familiar to lenders and investors than Ltd companies.
The Ltd company partners will pay corporation tax, while individuals pay tax personally.
If you’re thinking of setting up an LLP, speak to your accountant about whether it’s a tax-efficient option for you.
A CIC is designed for businesses that benefit the community, like Thickbroom Enterprise.
It’s a type of Ltd company that has extra rules, to ensure that profits are reinvested or used for social good.
They’re regulated by the CIC regulator and must meet community benefit requirements.
As you can see, there’s no one-size-fits-all when it comes to company structures.
We strongly recommend seeking professional advice before making a decision about your company’s structure.
After all, researching and making the right decision now can save you a lot of headaches down the road!
You don’t have to build your enterprise alone.
At Thickbroom Enterprise CIC, we help you to navigate the legal and financial responsibilities of establishing and maintaining a business in the UK, without the price tag.
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