UK Legal Forms

There are 4 basic types of business entities in the UK. I will not be including the plc, the Public Listed Company, as this is a Limited Company with more onerous legal and reporting requirements.

• Limited Company
• Limited Liability Partnership
• Partnership
• Sole Trader

They all have their own individual advantages and disadvantages, which I will briefly discuss below.

Limited Company

This is a separate legal entity, which is registered with both Companies House and HM Revenue & Customs. It is run by the directors and owned by the shareholders, which don’t necessarily need to be the same parties. Shareholders can be individuals and other corporate entities.

Advantages

• Separate legal entity
• Shareholders not liable for company debt, only to the extent of their capital contributed
• Flatter tax rates

Disadvantages

• Shareholders could get double taxed on taking their money out of the company

Limited Liability Partnership

This is also a separate legal entity, which is registered with Companies House and HM Revenue & Customs. It is run and owned by the partners, and can have corporate entity partners.

Advantages

• Separate legal entity
• Partners liability for debts is limited
• Has some benefits regarding the taxation of partner benefits

Disadvantages

• Taxed according to the partners’ individual tax rates

Partnership

This is a formal agreement between a number of individual parties, which is registered with HM Revenue & Customs.

Advantages

• Simple to set up and run
• Has some tax planning benefits regarding the taxation of partner benefits

Disadvantages

• Taxed according to individual partner tax rates
• No limited liability
• Needs to be changed every time a partner joins or leaves

Sole Trader

The easiest to set up and run, and just involves one party acting on their own.

Advantages

• Simple to set up and run

Disadvantages

• Owner is fully liable for all debts
• Limited opportunity to expand
• Taxed at highest rates