​A Brief Understanding of the Available Business Structures in UK

Posted by Cory List on 23rd Jan 2015

For business starters, it is imperative to understand the different types of business structure and benefits in UK. This includes information on tax regulations and operational requirements for opening a business.

Using the available and most feasible business structure, this could serve as leverage in strategically implementing business strategies that could lead to business profit and longevity.

Sole Traders

As one of the types of business structure and benefits in UK, the owner of a sole trading business himself functions as the key personnel. The person basically manages the whole business with or without staff to support him. Any business liability that may arise belongs solely to the entrepreneur.

This kind of business structure and benefits in UK is among the most common new businesses as this is easy to register and only entails minimal fees. Among the advantages of this business structure and benefits in UK is that all income generated in this type of structure belongs solely to the entrepreneur. However, one of the pitfalls of this business structure is that the entrepreneur and his business are considered one and the same. This means that when the business falls into debt, any personal funds of the entrepreneur can be automatically used to it pay off.

For its tax return, any income beyond £35,000, 40% of tax will have to be paid while income more than £150,000 requires payment of 50% tax.

In general, the entrepreneur is at a high exposure in this type of business structure and benefits in UK. There is no delineation of personal resources versus business resources. This could consequently result in the downfall of this business structure in UK.


This type of business structure and benefits in UK is formed when two or more people agrees to start a business through shared resources or entrepreneurial knowledge.

As compared to other business entities and benefits in UK, a partnership allows owners to be consultative with each other forming sound business decisions and judgments. Another one of its benefits is that the dependency of business does not solely rely on one person but on all the partners.

As the partnership involves more than one key person in the business, an agreement has to be created indicating the sharing of duties and responsibilities and more importantly, the distribution of income. On the other hand, one downfall of this business structure is the response to liabilities. In case a business incurs debts, all partners are held liable regardless who among them made a wrong decision.

In terms of tax settlement in this business structure, the income shares of all partners are treated as individual income. Therefore, partners are only required to return individually an income tax. Similar income tax brackets as the sole trader business structure and benefits apply to each partner plus a required payment for the partners’ individual National Insurance Contributions.

In summary, the partnership business structure is not entirely different from that of a sole trader. Responsibilities are still unbounded except that additional partners are present in assuming the duties and executing sound business decisions.

Limited Liability Company (LLC)

Ownership in this type of business structure and benefits in UK belongs to a group of people who have shared investments in the company. Here, ownership of the members is equivalent to the number of shares they have invested in the company. Which means that they are only accountable to the corresponding shares they have in the company presently.

Meanwhile, a Director, in this business structure and benefits in UK, is assigned for the overall management of the company. The Director assumes a variety of major responsibilities and is expected to bring success to the company, as the UK law defines. On the flip side, this business structure’sdownfall in UK lies on the area where the Director is solely accountable for the company’s development. Any proven mismanagement on the part of the Director may cause him/her to be replaced or legally charged. In case that a Director needs to be replaced, the members of the company would have to vote for the next Director.

Different from the Sole Trader structure, company resources and funds are well delineated from the Director’s personal resources. This, in a way, appears to be one of the benefits of putting up an LLC.

Companies under this type of business structure are required to comply with a corporate tax based on the overall company profit, while Directors are required to pay their individual income tax. Corporate tax ranges are as follows - 20% for overall company profit up to £300,000 and 26% for profits beyond £1.5m.

In this type of structure, members are entitled to receive the dividends from the company. Dividends are optionally distributed among its shareholders should the company earn enough profit in the past year. In most cases, the company is not held responsible to pay tax for every dividends paid out although the recipients or shareholders may be required to individually settle tax requirements for dividends received.

Limited Liability Partnership

This type of business structure somehow echoes some of LLC’s benefits as it likewise spares its shareholders from an unlimited liability. In this case, the shareholders’ liability for any company debt is only limited to their number of shares.

This business structure presents flexibility in terms of its organizational composition and overall maintenance of the partnership. This type of structure does not have a specified limit to the number of its partners or members.

Partners or members in this type of business structure can be individuals or companies. For individual shareholders, any gains of the company will be distributed among them to which they will be responsible in paying their income tax for. On the other hand, company members will be accountable in paying corresponding corporate tax for profit shares received.