Change your business structure

Common legal structures for businesses


Each legal structure for businesses has advantages and disadvantages.

Sole trader

Running your business as a sole trader offers the simplest legal structure. You are not required to register with Companies House. Accounts and record keeping is straightforward and any profits you make belong to you. However, it leaves you exposed if something goes wrong. It is generally not suitable for raising capital.

Self-employment means that you:

  • are the proprietor of your own business
  • have the legal and financial responsibility for its operations

Both sole traders and partners in a partnership are regarded as self-employed. If you're self-employed you'll need to register with HM Revenue & Customs (HMRC) so that they can set up the right Self Assessment and National Insurance records for you.

For further information see set up as a sole trader.


Partnerships share the burden of ownership, allowing two or more people to set up in business together. Like a sole trader, a standard (unlimited) partnership does not have a legal identity separate from that of the partners, so does not have to be registered at Companies House.

Standard partnerships have unlimited liability for the firm's debts. Partners in England, Wales and Northern Ireland are jointly liable for debts owed by the partnership, meaning they have equal responsibility for payment of the whole debt.

However, they are not severally liable, which could make each partner responsible for the entire debt.

For further information see set up a business partnership.

Limited liability partnership (LLP)

It is also possible to set up as a limited liability partnership (LLP), which can reduce the partners' individual liability risk. LLPs are taxed as partnerships, but have the benefits of being a corporate entity, and members have limited liability. An LLP can enter into contracts and hold property.

Limited company

Limited companies allow you to raise capital, issue shares and limit your risks. However, there are more rules governing the way they are run.

For further information see set up a limited company.

Social enterprises

Social enterprises are businesses with primarily social and/or environmental objectives whose profits are principally reinvested in the business or in the community. See choose the right structure for your social enterprise.

Company directors

Directors of limited companies - who are office holders - are usually treated as employees for tax and PAYE (Pay As You Earn) purposes. This will require the company to register with HMRC as an employer.

However, if they are treated primarily as shareholders, they will not be classed as employees and will pay tax on any dividends they are granted from the company's profits.

See legal structures: the basics.