How to choose between the different types of business to set up
If you’re starting a business in the UK, there are several different types of companies you can choose to set up – and we’re not talking here about the kinds of business you carry out, but the different types of business that you can set up.
For example, if you decide to start a career as a tradesperson such as a plumber or electrician, it might make most sense to start out as a sole trader, at least until you get better established.
In contrast, if you’re opening a shop and especially if you sell things you have manufactured or made yourself, then you may prefer to register as a company – and registering as a company makes more sense as your income increases and if you choose to employ anyone else to work for you.
Here are the different types of business structure you might want to choose between. There may also be other options depending on your chosen sector, and we have focused here on the types of companies you might create as a new start-up, not the kinds of business you might buy as a going concern, or franchise opportunities.
Arguably one of the simplest kinds of business structure is just to register as a sole trader. If you’ve been in employment before, sole trader status is a good step into self-employment, as the taxes you pay are all quite familiar.
Sole traders typically file a tax return each year after April 6th and pay any tax they owe before the following January 31st. You may be asked to pay income tax, National Insurance contributions and repayments on any student loans you have.
If your tax bill is over a certain amount, you might be asked to pay half of it in July and the rest in January – but you still get the tax-free personal allowance that you would get as an employee, too.
Another of the most common types of business is limited company status, also called ‘incorporation’ when you register with Companies House.
This gives you a registered company name you can use for trading, which can look more professional than working as an individual.
Your tax situation will change – your company may have to pay corporation tax, and you will officially be an employee of your company, and no longer self-employed, which means you will pay yourself a ‘salary’, although in practice you still have access to your money if and when you decide to spend some of it.
A business partnership allows more than one person to go into business together, with roughly equal responsibility for keeping the company afloat.
You can use a limited partnership to give one person less responsibility than the other – which protects them against some of the losses if the company goes into debt – and one partner will usually be nominated to handle official processes like filing your tax returns and so on.
An ordinary business partnership is a good way to have several people involved in a company on a roughly equal footing – it even allows for more complex types of companies where one of the named partners is actually another limited company that already exists.
Limited liability partnership
A limited liability partnership is one of the more complicated types of companies that you can set up, but it has benefits if several people are going into business together.
It is different from a limited partnership, and means that although partners must pay tax on their income from the company, nobody is personally liable to repay the company’s debts if it becomes insolvent.
In England a limited liability partnership must have ‘LLP’ on the end of its name – so you can easily see if a business you decide to work with is an LLP or not.
You usually can’t name a new company too similarly to an existing one, but there’s an exception if you already registered a company name and want to register an LLP with the same name – as long as both names ‘belong’ to you, or you have written permission from the company, Companies House should allow you an LLP with the same or very similar name.
Whatever type of business you choose to start, the Arro Business Account is here to help you manage your money – even as a sole trader.
Sign up in three minutes with guaranteed acceptance for all eligible applicants, and manage your business finances online without waiting.