When setting up a new business, one of the key, and often the first considerations will be in respect to which legal structure you will form in order to define the way the business is organised and help to determine your legal obligations.
Alternatively, you may run an existing business but due to recent or anticipated changes within the business, you are considering reforming your business structure.
The pros and cons of each option are always worth weighing up and considering so Stephen Newman, Partner and Head of our Company and Commercial team has created a brief insight below into the most common types of legal structures.
Sole Trader
The business is owned and run by one person. If you choose to become a Sole Trader you can employ other people but you retain sole responsibility for the business.
Pros
Own all the assets of the business;
Few formalities and paperwork.
Cons
Unlimited liability for debts and other liabilities of the business;
Personally responsible for paying income tax.
Partnership
A Partnership is an agreement between parties, also known as Partners, who agree to jointly manage and operate a company.
Pros
Few formalities and paperwork;
Share liability for debts of the business jointly and severally (or differently if written within a partnership agreement).
Cons
Personally liable for debts of the business;
Vulnerable to disputes where no partnership agreement is in place.
Private Limited Company
A Private Limited Company, or LTD, is made up of shareholders who are offered limited liability to their shares and restricts public trading.
Pros
Liability of the members is limited i.e. members are not personally liable for the debts of the Company (unless in their capacity as a director they give a personal guarantee);
Only one director required as a minimum.
Cons
Governed by the Companies Act 2006;
Numerous formalities and regulations;
Certain information i.e. ownership and accounts are made public.
Public Limited Company
A Public Limited Company, or PLC, is similar to a LTD however you are able to publicly raise capital through external investors by selling shares on the stock exchange.
Pros
Able to trade publicly and join a stock market in the UK;
Can raise money from members of the public;
Liability of members is limited i.e. members are not personally liable for the debts of the Company.
Cons
Must have at least two directors;
Heavily regulated;
Numerous formalities;
Even more information must be made available to the public.
Limited Liability Partnership
A Limited Liability Partnership, or an LLP, is a separate legal entity, meaning equity Partners are only liable for the money they initially invested and have management roles within the company.
Pros
A hybrid of a partnership and limited company;
Limited liability for members.
Cons
A minimum number of two members are required;
Cannot be set up by non-profit organisation;
Certain information is made public;
There are some formalities involved.
Contact Us
If you are setting up a new business or would like to discuss changing your legal structure, in-depth and specialist advice from experienced solicitors is a must. Our Company and Commercial team have a wealth of experience assisting and acting on behalf of new and existing businesses. For more information or to make an enquiry, please contact our team by emailing info@ramsdens.co.uk or calling 01484 821 500. Alternatively you can fill out an online enquiry form and a member of our team will be in touch.