Most Common Business Structures

Usually, businesses will operate under one of the following business structures:

1. Sole Trader – This is the simplest structure to set up and maintain. You run the business without any other owners and have complete control over it. You alone are responsible for hiring and firing employees and entering into contracts to do with the business. You are also solely responsible for the debts of the business and your liability for business debts is unlimited;
2. Partnership – A partnership involves you going into business together with one or more other people. The partnership is not a separate legal entity. Each partner is jointly entitled to the profits of the business and its assets and is jointly and severally liablee for its debts. It is preferable to have a written partnership agreement which will set out the rights, responsibilities and obligations of the partners. In the absence of a formal agreement then the provisions of the Partnership Act 1892 will apply which may or may not be in accordance with the parties’ wishes;
3. Company – You can become a director and/or shareholder of a company which is a separate legal entity and can hold the assets of the business and operate it in its own right. The company is liable for business debts it incurs and generally your personal assets cannot be accessed to pay for such debts. However, some entities such as banks may require a personal guarantee from you as a director when entering into a transaction with them; and
4. Trust – You can set up a trust which involves a trustee (an individual or company) operating the business on behalf of and for the benefit of the beneficiaries of the trust, often members of the same family. A trust is not a separate legal entity, the trustee being the one legally responsible. A trust is established by way of a written trust deed.