Different Business Structures in UK: Pros and Cons

This report discusses the different business structures in UK such as sole proprietorship, partnership, limited liability partnership, and limited company. It explains their advantages and disadvantages to help readers make an informed decision. The report also provides expert advice for expanding a business, specifically recommending the limited liability partnership structure for a sole trader looking to switch business structures.

BUSINESS LAW

Contents
INTRODUCTION...........................................................................................................................1
Business Overview of UK...............................................................................................................1
Different Business Structure in UK.................................................................................................2
SOLE PROPRIOTERSHIP.........................................................................................................2
PARTNERSHIP...........................................................................................................................3
LIMITED LIABILITY PARTNERSHIP....................................................................................4
LIMITED COMPANY................................................................................................................5
RECOMMENDATION...................................................................................................................5
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
In United Kingdom business environment is very supportive and attractive, from all over
the world people started their business and its a desire for many to build their business in the
territory of United Kingdom. There is no such definition of business but it can be define as; its a
wide term and also it has many functions to perform, manufacturing or selling the products and
providing services to the people is said to be business. It can be done in the industry, it can be
commercial or sometime it can be professional. Business is just for providing the goods and
services of any kind to the people who are need of that products and services. The main objective
of starting any business is to earn more and more profit but, very few are also get done just to
help others which are known as Non- profit organisation. To govern the rules and regulations of
the business activities in UK, there is a company Law which govern all the public as well as
private business corporation (Almeida, and Wasim, 2022). This act assist the companies to do
fair trading and run their business in the legal manner, the law also assist the business companies
in making the separate legal entity. In UK, there are several forms of business structure which
can be choose to start the business such as; Sole proprietorship, Partnership, Limited Liability
Partnership and Limited Company. In this also, these different structure of business will get
discuss along with each one's
pros and cons. By getting the knowledge of all the different structures of business, at the end of
the report an advice or suggestion will have to made for the sole trader Sam. He doing the
business for the last eight years in dealing with electrical parts which is known as IOM solutions.
After doing the business for eight years he wants an advice to switch the business structure for
expanding the business.
Business Overview of UK
United Kingdom is one of the most safest place to do business around the world, they
didn't impose any restrictions to do business in their territory. They have the great statics of the
previous year, around six million private companies got registered at HMRC. The perfect
business environment is the result of making the perfect acts and laws for business activities. The
parliament of UK, gives its best contribution in making the act for the all the business
companies. In UK, there is a Company law of 2006, which govern all the functioning of the
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business organisation. This law shows the legal path of doing business which covers all the right
sand duties of the shareholders, owners and the employers or the employee's. All the
responsibility like company's liability, tax liability, registration process and much more. Almost
all types of business structure are running in the land of UK, i.e. from sole trader to limited
company. The act also describes the number of directors and the partners can be there in business
structures (Deb, 2022). There are board of directors in limited companies who have the real
responsibilities to run the company according to the law. To Start the business organisation
except the sole trading, it is required to prepare the Memorandum of Association and the Article
of Association. These are the two documents which should get prepare at the time of registration
and it contains the internal as well as external policies of an organisation.
Different Business Structure in UK
Doing business is not an easy task but the more difficult task is to chose the business
structure for doing business. It is the foremost thing which should get decide before start trading.
As all the persons have different desire from their business, some have the passion, some are
doing for living some are doing it to get fame and money. All different business structure's are
different in nature and they have different characteristics of each. Its depend up on the person's
capital and requirement from the business which decide the structure of business. If the person is
alone and have very less capital then, there is a option to start the sole trading and become the
owner of the business alone (Gerli, and Whalley, 2021). If there are more than one person and
have an adequate capital then, they can start the partnership form of business i.e. general
partnership or maybe if limited liability partnership. If the person have desire to do real business
and have the connection around the world then, the limited company can be open in the large
scale. All business structures are beneficial in their position and also have some disadvantage if
they get compare with other structure of business.
SOLE PROPRIOTERSHIP
It I sone of the most easiest and simplest form of business structure from all the different
business structure's. In such type of business, there is no need to brings more capital, its
procedure of setting up the business is very easy which, takes less time to get establish. In this
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structure of business there is only one person who is the owner of a business alone. Being a
single owner there are many benefits and some difficulties also which have to get face by the
trader. However to being alone it means, the profit would not get share and the owner can
perform and take business decisions according to the mindset. But also as a single owner, all the
debts and liability have to bare alone. The tax deduction would be made from the personal
income which is not good for the owner (Hannam, and Gable, 2020). This type of business
structure have to get registered at HMRC and also enquire fro the self assessment tax returns.
Advantages
 It is very easy establish the business, there is no such difficult formality to perform.
 The administration responsibilities are very low
 No registration fee
 Enjoy all the business profit alone.
Disadvantage
 There is unlimited liability towards the business
 No one else can support financially, emotionally
 No sharing of risk
PARTNERSHIP
This form of business structure is also easy to carry because of the simple process to
establish. It doesn't need any difficult formalities to conduct the business, it just need an
agreement which build the relation of partner in the business. In that agreement partners liability
will get decide on the basis of share capital they brought to invest in the business and that ratio
will decide the proportion of ownership in the business (Osier, 2020). The tax liability on every
partner to pay from their part of earnings and also they have to contribute in National Insurance.
The partnership company have to get registered at HMRC which, makes the company legal. The
liabilities of the partners are not limited in this business structure, they have to bare all the
liabilities of the company like debts, loans and other liabilities.
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Advantages
 Easy to establish, just need an agreement which decide the partner's position in the
company and bound the partner's towards the business
 Unlike sole trader the partner's have financial and moral support of each other
 Liability of the company got distributed among the partner's
Disadvantages
 Company's liability is on the partners
 Partners are get liable for the negligence of another partner also
LIMITED LIABILITY PARTNERSHIP
This form of business structure has similar structure with the general form of partnership,
it just have more partner's than that. The registration of LLP is necessary and it would get done
at Companies house where all the registration has been done of the business organisation. The
company got registered for the corporation tax also which has been convey to HMRC about it.
After registration company uses the term LLP after the name of the partnership firm (SOLAK,
2019). This is one of the most common form of business structure the reason behind this is, the
liability of the partner's are limited and unlike general partnership partner's are not liable for the
negligence of other.
Advantages
 Limited liabilities of the partners
 Partner's pay the corporation tax rather than the income tax
Disadvantages
 Partner's have the responsibilities to submit the account at the end of the year
 Administrative responsibilities is high
 Registration required time and also higher fee than general partnership & sole trader
LIMITED COMPANY
This is the most complex form of business structure which, requires the huge amount of
share capital at the starting of the business. The Ltd. Company got registered at Companies
house and after that the identity of the company become separate from the shareholders or from
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the owner's. It means company can sue anyone form its own name and anyone can also sue the
company. There is no liability of the shareholders, there are boar of directors who would be
responsible for managing the business activities and regulate the functions of the company. All
the administration responsibilities are on the company's board of directors (Taylor, 2021). In this
form of business also the partners pay the corporation tax and not an income tax.
Advantages
 Liability of the partner's are limited towards the company
 Registration makes the separate legal entity of the company
 it gives the best experience of business to the shareholder's
Disadvantages
 Registration process takes and time as well as high fee
 Administration responsibilities are also very high
RECOMMENDATION
It is very important to have the knowledge about each and every business structure before
starting the business. It takes time and require plan and the amount to invest in the business. In
the above report all types of business structure got discussed along with their pros and cons. In
the recommendation to the sole trader, it must to say that the sole trading is the most common
and the easiest way of doing business. As, the sole trader explained about the business that, the
business was stand out for the last eight years which, is fabulous it means there is profit in doing
the business of electrical parts. But the disadvantage of engaging in such type of business
structure is, even in the higher profit earning owner has to pay the tax amount as per the profit
earning. So, there is no point of earning high profit, as much the higher profit got earn the more
amount of tax would get deduct from the income of the sole trader (Vissak, 2021).
It will be better for Sam to switch the business structure as, there is a experience of eight years in
the same business it will be better to form the Limited Liability Partnership firm. In this form of
business structure liability got diminished, there would no need to pay the tax from their personal
income then corporation tax will get paid. It just need the partner's and an agreement to enter into
limited company. After registration and doing trading it will get realise that, it will give more
profit to the company and even with less amount of investment as the share capital has been
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brought by all the partner's. So, the structure of LLP is recommended to the sole trader which
helps the owner in expanding the business.
CONCLUSION
This is the report which start with an introduction in which, the definition of business got
explained and there was a discussion of UK business law. After that the report covers the UK
business environment in which the governing law i.e. company act got discussed with all the
benefits. After mentioning the business environment of UK, different business structure got
explained with their advantages and disadvantages. The different types of business structure
which got discussed above are; sole proprietorship, partnership, limited liability partnership and
limited company. In the end of the report, as per the demand of the sole trader the
recommendation was made to switch the business structure. In that recommendation, the limited
liability partnership was suggested. It helps the sole trader to run the business with the partners
and also able to expand the business.
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REFERENCES
Books and Journals:
Almeida, F. and Wasim, J., 2022. Eco-innovation and sustainable business performance:
perspectives of SMEs in Portugal and the UK. Society and Business Review, (ahead-of-
print).
Deb, E., 2022. International Business Law-Critical Review on Corporate Governance in
UK. Available at SSRN 4074105.
Gerli, P. and Whalley, J., 2021. Fibre to the countryside: A comparison of public and community
initiatives tackling the rural digital divide in the UK. Telecommunications
Policy, 45(10), p.102222.
Hannam, J. and Gable, O., 2020, July. “The age of the Svengali is over”: A new era of artist
management. In IASPM UK & Ireland Online Conference.
Osier, M., 2020. Discussion Report–UK and EU Company Law After Brexit. European
Company and Financial Law Review, 17(2), pp.200-204.
SOLAK, E., 2019. DOES SHAREHOLDERS’PARTICIPATORY POWER UNDERMINE THE
BOARD AUTHORITY IN THE UK COMPANY LAW?. Law and Justice Review,
(18), pp.27-27.
Taylor, A., 2021. Art Law and the Business of Art. By Martin Wilson.[Cheltenham, UK: Edward
Elgar Publishing, 2019. xxxvi+ 456 pp. Hardback£ 115.00. ISBN 978-1-78897-987-
0.]. The Cambridge Law Journal, 80(2), pp.420-423.
Vissak, T., 2021. Jansson, Hans (2020): International Business Strategy in Complex Markets.
Cheltenham UK: Edgar Elgar. JEEMS Journal of East European Management
Studies, 26(3), pp.568-581.
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