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• Sole Trader (click to expand)
  • A sole trader is typically a business owned and operated by one individual. A sole trader is not considered to be a separate legal entity under the law, but rather is an extension of the individual who owns it. The owner has possession of the business assets and is directly responsible for the debts and other liabilities incurred by the business. The profit or loss of a sole trader is combined with the other income of an individual for income tax purposes.
    
    A sole trader is perhaps the easiest form of business to own and operate because it does not require any specific legal organisation, except, of course, the normal requirements such as licenses or permits. A sole trader typically does not have any rules or operating regulations under which it must function. The business decisions are solely the result of the owner’s abilities, and all the individual’s assets are at risk if the business fails.
     
• Partnership (click to expand)
  • In a partnership, two or more individuals join together to run the business enterprise. Each of the individual partners has ownership of company assets and responsibility for liabilities, as well as authority in running the business. The authority of the partners, and the way in which profits or losses are to be shared, can be modified by the partnership agreement. The responsibility for liabilities can also be modified by agreement among the partners, but partnership creditors typically have recourse to the personal assets of each of the partners for settlement of partnership debts.
    
    The rights, responsibilities and obligations of partners are typically detailed in a partnership agreement. It is a good idea to have such an agreement for any partnership.
    
    A partnership is a legal entity recognised under the law and, as such, it has rights and responsibilities in and of itself. A partnership can sign contracts, obtain trade credit and borrow money.
    
    A partnership is also required to file an income tax return. A partnership typically does not pay income tax; the information from the tax return is combined with the personal income of the partners to determine their overall tax liability.
     
• Limited Liability Partnership (click to expand)
  • An LLP is a form of legal business entity that gives the benefits of limited liability but allows its members the flexibility of organising their internal structure as a traditional partnership. They are intended for businesses which carry on a trade or profession, and are particularly attractive to larger professional partnerships.
    
    LLPs are in law regarded as ‘bodies corporate’ and are subject to aspects of company law, but for tax they will generally be treated as ‘partnerships’. The members provide working capital and share any profits. Members who are individuals will be liable to pay income tax under the
    
    Schedule D rules, and self-employed Class 2 and Class 4 National Insurance contributions. Members who are companies will be liable to pay corporation tax on their share of profits.
    
    Although, the liability of the members will normally be limited, the firm itself, and any negligent members, will be liable to the full extent of their assets.
    
    LLP disclosure requirements are very similar to those of a company, including the filing of annual accounts (audited where necessary). There are also similar rules for the filing of annual returns, and notifying changes in members’ details or the location of the Registered Office. However, the LLP agreement remains confidential
    
    Every LLP must have at least two, formally appointed, Designated Members, who carry responsibilities similar to those of a Company Secretary.
    
    The name of an LLP is used in a similar way to that of a company, and is displayed in the format Millionaire Limited Liability Partnership, or Millionaire LLP, and there are similar restrictions on the use of similar or sensitive names.
     
• Limited Company (click to expand)
  • A limited company is a separate legal entity which exists under the authority granted by statute. A limited company has substantially all of the legal rights of an individual and is responsible for its own debts. It must also file tax returns and pay taxes on income it derives from its operations. Typically, the owners or shareholders of a limited company are protected from the liabilities of the business. However, when a limited company is small, creditors often require personal guarantees of the principal owners before extending credit. The legal protection afforded the owners of a limited company can far outweigh the additional expense of starting of starting and administering a limited company.
    
    A limited company must obtain approval from Companies House to use its proposed name. A limited company must also adopt and file a Memorandum and Articles of Association which govern its rights and obligations to its shareholders, directors and officers.
    
    A limited company must file annual tax returns (“corporation” tax returns) with the Inland Revenue.
    
    Incorporating a business allows a number of other advantages such as the ease of bringing in additional capital through the sale of share capital, or allowing an individual to sell or transfer their interest in the business. It also provides for business continuity when the original owners choose to retire or sell their shares.

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