Commercial Q&A

Your legal questions

answered...

Q. I want to start my own business, what is the best legal structure?

When deciding on what legal entity your business will take, there are essentially four options;

  • Sole practitioner
  • Partnership
  • Limited Liability partnership
  • Limited company.

Each option comes with various implications on how the business will be run and your responsibilities to it. At their basic level these can be viewed as:

Credibility

The selected entity may well influence the way in which people perceive your organisation. Limited companies or Limited Liability Partnerships are often perceived as being more credible and robust than sole traders or simple partnerships. Remember this is only a perception.

Control

To a large degree the selected entity may be dictated by the way you wish your operations to be organised and whether you intend to work on your own or in conjunction with others. For instance as a sole trader you will call the shots but may lack the back up and flexibility that a partnership has.

Liability

The selected entity will have a significant impact on the way you are protected under law for debt incurred by the business (this includes your partners in the case of a normal partnership). As a sole trader or regular partnership you, and if applicable your partners, can be held responsible for 100% of the debts. However as a sole trader or other non-limited business, personal assets can be at risk in the event of a failure of the business, but this is generally not the case for a limited company or limited partnership.

Responsibility

Whilst you are always responsible for your actions within the business (even with limited liability), certain entities are less affected by taxation rules and legal regulations.