Understanding Business Structures: A Simple Guide for Entrepreneurs

If you’re starting a business, it’s super important to understand different business structures. These structures can affect how your business runs and how you make money. There are three main types of business structures to think about: sole trader, partnership, and limited company.

1. Sole Trader:

• This is the easiest way to run a business.
• About 60% of businesses in the UK are sole traders.
• You get to keep all the profits, but you are also responsible for all the debts. This means if something goes wrong, your personal belongings could be at risk.

2. Partnership:

• A partnership is when two or more people own the business together.
• Around 10% of businesses in the UK are partnerships.
• In a partnership, everyone shares the profits and responsibilities. But if one partner can't pay off their debt, everyone in the partnership is responsible for it.

3. Limited Company:

• This is a different kind of business that is treated as a separate legal entity.
• About 30% of UK businesses are limited companies.
• Limited companies provide a level of protection for personal belongings because only the company's assets are at risk. However, they have to follow strict rules like preparing annual accounts and audits.

Conclusion:

Knowing these business structures helps you figure out the risks, taxes, and ways to get funding. For example, limited companies have a corporation tax of 19% (as of 2023), which can be lower than the income tax rates for sole traders, which can range from 20% to 45%. Picking the right structure can really boost your chances of success in a busy market!