Types of Business Structures in the UK

Entrepreneurs consider the United Kingdom as one of the most attractive countries in Europe to form companies. This is mainly due to low tax rates, a rapid business creation and registration system and the existence of numerous trade agreements with many other international markets. However, it can be difficult to find the best legal form for a company. Therefore, in this article I explain the different types of business structures in the UK.

The Different Types of Business Structures in the UK

Sole Trader

Sole traders in the UK are single-person companies that carry out an economic activity without registering into the Companies House.

In comparison to other legal structures, they stand out in two matters. Firstly, it has full liability. This means that the owner of the business will respond to the debts of the business using their personal assets. Secondly, the corporation itself will not have to pay taxes, but its director must do it as a natural person. Therefore, instead of paying the Corporation Tax, they will pay the Income Tax and the corresponding National Insurance fees. In this article I explain in detail the taxes that a sole trader must consider.

Partnership

A partnership is a company formed by two or more partners who carry out a joint business activity. Like sole traders, they do not register into the Companies House, so they do not have legal personality neither. Thus, they have unlimited liability.

Limited liability partnerships (LLP) are a variation of this type of legal structure. Its directors register them into the Companies House and the liability of their partners is limited to the money they have contributed. Only those enterprises with a profit-making motive will be able to access this type of configuration.

In any of the previous cases, the partnership will not pay Corporation Tax, but its members will have to declare their corresponding Income Tax.

Private Limited Company

This is the most widely used type of business structure in the UK. The main reason for its popularity is that it has limited liability. This means that, in the case the corporation incurs debts, each shareholder will contribute with the money they have invested. It also stands out because it will not be necessary to have a minimum share capital sum. For the above two reasons, it is an attractive alternative, especially for small and medium-sized enterprises.

To finance themselves, they may rely on options such as bank loans, venture capital funds, angel investors or state subsidies. However, they will not be able to sell their shares publicly.

Public Limited Company

Public limited company (PLC) is another class of enterprises that its directors must register them into Companies House and whose members have limited liability. Its biggest difference with private limited companies is that public ones can sell their shares to the public. Apart from that, authorities require them to set a minimum share capital of 50 000 GBP and to appoint at least two directors for the business.

Private limited companies, if their statutes do not prohibit it, may become PLCs. This is mainly done to get capital injections through stock exchange listing.

The above four business structures are the most common in the UK, but they are not the only ones. Other legal forms would be UK Societas, Private Unlimited Companies or Community Interest Companies.

What Type of Business Structure in the UK is More Beneficial for a Company?

For small and medium-sized enterprises, the two best options will be to establish themselves as sole traders or private limited companies. Choosing one or the other will depend on whether in the future the owners intend to expand the business and hire new employees or for tax reasons.

The legal structure of partnerships, on the other hand, is especially useful for professionals that are looking to join under the same name or for small enterprises.

Lastly, public limited liability companies will be particularly suitable for large corporations that want to increase their capital by selling their shares on the stock exchange.

In conclusion, depending on the specific characteristics or their object, it will be more advisable to opt for one type of legal structure or another.

In ukstartcompany, you will find information about how to establish, register and operate companies with different legal structures and business activities in the UK.