If you are considering starting your own business, you must choose the right legal structure. You have four main options: sole trader, partnership, public limited company, and private company. It is important to investigate each option carefully, as there are advantages and disadvantages to each business structure.

Sole trader

This is a business run by an individual for his or her own benefit. The liabilities associated with the business are the personal liabilities of the owner, and the business terminates upon the owner’s death. The simplicity of this structure makes it the easiest and cheapest to establish.

Partnership

A partnership is an agreement between two or more people who decide to start a business for profit. Each partner shares the business’ profits and losses, and each has liability for its debts.

Public limited company

A public limited company is an organisation that is established with the aim of running a business. This means that its finances are separate from the personal finances of those who choose to set it up.

A public limited company must have at least two shareholders and it must have issued shares to the value of at least £50,000 before it can trade. This type of business structure is the only structure that can sell shares to the general public.

In addition to shareholders, a public limited company must have at least two directors – at least one of which must be an individual – and a secretary. The company shares its profits with its shareholders. Shareholders are responsible for the company’s financial liabilities, but their responsibilities are limited to the value of shares that they own but have not paid for. Directors are also responsible for financially backing the company up to a specific amount in the event of it being wound up.

Private company

Like a public limited company, a private company is an organisation that is established with the aim of running a business. This means that its finances are separate from the personal finances of those who choose to set it up.

There are two main types of private company: private limited company and private unlimited company. Both types must have at least one member and one director.

A private limited company is so called as it is limited by shares, which means that the liability of its shareholders is limited to the amount of the unpaid shares they hold, or limited by guarantee, which means that the liability of its members is limited to the amount they agree to contribute in the event of the company being wound up. In a private limited company limited by shares, shareholders can be individuals or other companies. However, unlike a public limited company, this type of company cannot offer shares to the general public.

A private unlimited company is so called as there is no limit on the liability of its members. It may or may not sell shares to raise money.

Identifying the best choice of business structure involves balancing a range of factors, including the level of personal liability you are willing to take on with regards to your business’ debts and your personal tax position. If you are unsure as to the best type of structure for your business, you could always seek further advice from an expert.