Often clients ask which business structure should they use to start their upcoming business ventures.
The answer is “depend on”. A few factors will determine which types of business entity you choose: responsibilities, liabilities, taxation and recordkeeping.
It’s crucial to look at all the options before you perpetrate.
Let’s have a quick look at the differences types of business entities:
- Sole trader
- Partnership
- Limited Liability Partnership (LLP)
- Limited Company
Sole trader – the owner of the business keeps all profits and also full liable for debts. The owner is also responsible for their personal tax.
Partnership – two or more individual who are the responsible people for the business and both shares the business profit or losses as well as debts. The partners are responsible for their own tax.
Limited Liability Partnership (LLP) – This is a partnership with limited liabilities. Again the members (partners called members) shares profit and/or losses. LLP model protects its members’ assets, limiting their liability to however much they have invested in the business and any personal guarantees they may have given when raising loans.
Limited company – Shareholders are the owner of the business, and they are legally responsible for its debts only to the extent of the amount of capital they invested. The directors are the manager of the business. The company is responsible for the corporation tax.
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