The legal structure you choose for your business is fundamental to the way it operates. You need to think carefully about which is the best structure for the way you intend to do business as it will affect your financial liability, tax and National Insurance and the ways your business can raise money.

There are three options for a business legal structure:

Sole Trader

Operating as a sole trader is the most straight-forward option. You are taxed under the Inland Revenue's Self-Assessment system, with income tax calculated after deduction for legitimate business expenses and personal allowances. A sole trader is personally liable for the debts of the business, but also owns all the profits.

Detailed information on setting up and running as a Sole Trader is availble from GOV.UK.


A partnership is an association of two or more people formed for the purpose of carrying on a business. Partnerships are governed by the Partnership Act (1890). The Partners are liable for any debts of the business. The operation of a partnership is usually governed by a "Partnership Agreement".

Detailed information on setting up and running a Partnership is availble from GOV.UK.

Limited Company

A limited company is a legal entity that is created to run your business. It’s responsible in its own right for everything it does and its finances are separate to your personal finances. The benefits are limited liability and the ability to raise capital easily. However you will have higher costs, increased paperwork and greater regulation to adhere to.

Detailed information on setting up and running a Limited Company is availble from GOV.UK.

Although not a legal requirement if there is more than one shareholder it is a good idea to draw up a Shareholders Agreement'

A guide "Shareholders Agreements" is available from

Guides and Advice

A guide, "Business structure types: limited company vs sole trader vs partnership" is available from

More advice on deciding which legal structure to adopt can be found at StartUps.

A guide to the basics of Business Structures s available from businessgateway.

If you found this useful please share it

Start typing and press Enter to search

Shopping Cart