When starting a business, choosing the right structure is crucial. Typically, businesses operate under one of the following structures:
1. Sole Trader
The sole trader structure is the simplest to establish and manage. You run the business alone and have full control over all decisions. You are solely responsible for hiring staff, entering contracts, and managing operations. However, you also carry unlimited personal liability for any business debts, meaning your personal assets are at risk.
2. Partnership
A partnership involves two or more people running a business together. It is not a separate legal entity, so each partner shares the profits, assets, and liabilities jointly and severally. Having a written partnership agreement is highly recommended to clearly define each partner’s rights, duties, and obligations. Without an agreement, the default rules under the Partnership Act 1892 will apply, which might not reflect your intentions.
3. Company
A company is a separate legal entity that can own assets and conduct business independently of its owners. You can become a director and/or shareholder, with the company responsible for its own debts. This typically limits your personal liability, although banks or other lenders may require personal guarantees from directors when providing finance or entering contracts.
4. Trust
A trust is an arrangement where a trustee—either an individual or a company—manages the business assets for the benefit of beneficiaries, often family members. Unlike a company, a trust is not a separate legal entity; the trustee holds legal responsibility. Trusts are established through a formal written trust deed.
Need Help Choosing the Right Business Structure?
Selecting the best business structure can impact your liability, taxes, and control. Contact A. S. Laumberg for personalised legal advice tailored to your business needs.