The Different Forms of Business

If you are thinking of starting up a new business, you will need to consider which legal structure it should have. The following provides some basic information on the different types of business:

Sole trader

As a sole trader you will have your independence of running the business and you will not need to report to or explain your actions to anyone. It is easy to set up and run, and all the profits go to you. Some disadvantages include having no support from a fellow partner. You will also have unlimited liability and you be personally responsible for any debts run up by your business.

Partnership

This is also easy to set up and run, though it is always advisable that a Partnership Agreement is signed by all the partners. The business has the benefit of the varying range of skills and experience that the individual partners of the business have.

However, two or more partners trying to decide important decisions may lead to disagreements between themselves. Also, there is unlimited liability and, again, each of the partners are personally responsible for any debts of the business.

Limited Liability Partnership (LLP)

Not only do LLPs retain the flexibility of a partnership (see above) but they also limit the personal liability of the partners. Though there is no restriction on the number of total partner, at least two partner must be “designated members” and the law places extra responsibilities on them.

Forming an LLP is usually a little more complex and costly than a partnership and again, when there are disagreements between the members, problems can occur.

Limited Liability Company

A limited liability company is usually identified by the name containing ‘Limited’. Here your personal financial risk will be limited to how much you invest in the business and any guarantees you have given in order to obtain financing.

Disadvantages include the compliance of legal duties set by the Company law which require the filing of an Annual Return and filing the company’s accounts every year.

Franchise

A franchise takes advantage of the success of an established business and support networks. You will therefore be running a business that has already been tried, tested and successful.

However, a franchise usually requires a fairly high initial starting cost – you pay the franchiser a lump sum for having the benefit of the successful recipe. You may also be required under the Franchise Agreement to pay a share of the turnover to the franchiser, which will reduce the overall profits. Your freedom to manage the business in your own style may also be impinged by the terms of the Franchise Agreement.

share this Article

Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp
Share on email

Recent Articles