Types of Business Structures

Unincorporated business

A type of business that does not have its own legal identity (or separate personality), meaning there is no legal distinction between the business and its owners and managers.

Incorporated business

A business that has its own legal identity (or separate personality), meaning there is a legal distinction between the business and its owners and managers.

Sole trader

A self-employed person who owns and runs their own unincorporated business as the sole owner, though they may have employees.

Sole practitioner

A sole trader who has a profession (such as a dentist or therapist) rather than a trade.

Unlimited liability

A situation where a business owner is personally and directly responsible for all debts and liabilities incurred, placing personal assets at risk of bankruptcy if the business fails.

Personal assets

Items belonging to a business owner, such as any property they own or money held in bank accounts, that are placed at risk under unlimited liability.

Key disadvantage of being a sole trader

It opens the owner up to unlimited liability, making them directly liable for business debts.

Key advantage of being a sole trader

There are no formalities or legal processes required to set up the business, avoiding the extra costs, filing, decision-making, and disclosure requirements of forming a company.

Sole trader administrative obligations

Sole traders must register with HMRC, and some may need to register for VAT.

Partnerships

Unincorporated businesses that require with at least two owners.

S 1 Partnership Act 1890 Definition of Partnership

An unincorporated business that exists when two or more people carry on a business in common with a view of profit

What formalities are required to set up a business partnership?

No formalities required however it is desirable to have a formal agreement that sets out the terms of the partnership as they are still subject to the Partnership Act Provisions.

Disadvantages of Partnerships (Unincorporated)

Both partners are responsible for all debts of the partnership and their personal assets are at risk if the Business is not making enough money. (Unlimited Liability)

Types of Partnerships

The Partnership Act governs General Partnerships, however there are also Limited Partnerships and Limited Liability Partnerships

Do Partnerships Have Legal Personality?

Partnerships do not have legal personality, they cannot enter into contracts or own property in the name of the partnership. Partners act individually on behalf of the partnership.

How are profits divided in partnerships

Partners will divide the profits or losses of the business between them.

How are partnerships taxed

Partners are taxed separately as self-employed individuals and pay income tax on their share of the profit.

How are partnerships taxed if companies are included

Companies will be liable for corporation tax on their share of the profit.