Business structure

[AskSYB]

What is the best structure for my business?

[sybadmin]

In issue 43 of SYB magazine Director of Sailsbury & Company Chartered Accountants, Tom Latham replies:

The main difference between the options available is whether or not the proprietors or owners have unlimited liability.
When operating a business as a sole trader or a partnership, the proprietors or partners are generally exposed to unlimited liability in favour of their creditors – usually the bank, suppliers and the Crown.

Using a limited company as the vehicle for operating the business essentially reduces the exposure to the amount of money put into the business, subject to any guarantees given to banks or other finance providers.
A third way is to operate as a Limited Liability Partnership (LLP) which, as the name suggests, again limits the liability of the owners or ‘members’.

Owners of unincorporated business and LLPs are taxed as self employed whilst owners of a limited company generally receive dividends and directors will usually receive a salary that is taxed as a normal employee with PAYE applied.
Each structure has its relative advantages and disadvantages, depending on the personal circumstances of the owners and profitability level of the business, and you will need to take detailed advice as to which is the most appropriate for you.
Other issues such as succession planning or exit strategies may also be relevant, but for new businesses the most immediate concerns are likely to be limiting risk and minimising cash outflows for taxes.