Track 46

Track 46.

So, let me summarize the differences and similarities between each business structure.

On the one hand, it’s fairly simple and inexpensive to set up as a sole trader.

You don’t have to worry about lots of administration and financial organisation, and you can keep total control of your business and decision-making.

On the other hand, you may end up paying more in tax than you would as a limited company, you are personally responsible for your debts and losses, and it might be more difficult to get valuable contracts if your business does not have limited liability.

With regard to partnerships, there are two kinds: simple partnerships and LLPs.

In comparison with sole traders, partnerships have the benefit of more people to plan and make decisions.

It’s easier to take care of the business when one partner is not able to take an active part, and it can also be easier to borrow money than for a sole trader.

On the negative side, liability is shared among the partners and having more than one owner can make things more complicated when there are disagreements, or if the business needs to be brought to a close.

One other difference between sole traders and partnerships is that the partners need to trust each other.

If a partnership has serious money problems, one partner may leave the other to deal with the debts.

Clearly this is not a problem for sole traders.

One similarity between partnerships and sole traders, though, is to do with tax.

The sole trader must submit a yearly income tax assessment to the tax office.

The same is true of partnerships, as members are treated individually for this purpose.

When we compare simple partnerships with LLPs, we find various differences.

For example, LLPs are legally required to submit their accounts and annual returns to Companies House.

This is not something that is required for simple partnerships.

Another difference is to do with debt.

In an LLP, the partners personal possessions and property are protected.

In a simple partnership, however, like sole traders, the members are personally responsible for any business debts.

Finally, limited liability companies have two main advantages over simple partnerships and sole traders: this type of structure limits the financial liabilities of the owners to business losses and not personal losses, and it can save money, as corporation tax is generally lower than income tax.

On the other hand, there are a lot more administrative and legal requirements.

Company accounts and an annual return must be sent to Companies House.

Similarly, there is a legal requirement to keep company records at the registered address.