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There are various ways in which businesses can be structured, and it is important that the structure that is chosen is the right one for the business.

There are four main options:

• sole trader;
• partnership;
• limited liability partnership; and
• limited company.

The choice of business vehicle affects the type of taxes you pay, your liability for business debts and the legal and administrative requirements imposed on the business. It will also affect the way in which business decisions are made and the sources of finance available to the business.

In deciding on the right structure for the business, it is necessary to take account of all relevant factors and also your attitude to risk.

For example, a sole trader is the simplest set-up and the proprietor gets to keep all of the profits. However, he or she is also liable for all of the business debts.

A limited company is more complicated to set up and administer, but the shareholders’ liability is limited to the amount of capital that they own – a major plus.

Example:
Bill wants to set up his own business. He has some money to invest but does not want to risk losing his family home if the business fails.

He is also keen to present a professional image to potential customers to help him win new business.

Having considered all the factors, Bill decides that a limited company is the right vehicle for his business. Limited liability is very important to him and he is prepared to undertake the additional administrative burden associated with a limited company in return for this.