Sole trader
A sole trader is a business owned and run by one person. There are over 3 million sole traders in the UK, making it the most common business type.
As a sole trader you:
- are self-employed
- make all the decisions for your business
- register for Self Assessment and complete a Self Assessment tax return each year
- keep all the profits your business makes
- can hire people to work for your business
Limited company
A private limited company is an incorporated business type, which means it is a separate legal entity, and you are not personally responsible for the business’s debts. 37% of UK businesses are limited companies.
As a limited company you:
- are employed by the company, and can receive a salary and dividends
- appoint a company director to run the business – this can be you or another shareholder
- register with Companies House and file annual accounts and statements which are published online
- pay Corporation Tax on your profits
- follow strict rules setting out how you must run the company, manage money and keep records
- can hire people to work for your business
Partnership
A business partnership is a business owned by 2 or more people who manage the business together and share its profits. Around 6% of UK businesses are partnerships.
As a partnership, you:
- are self-employed
- are jointly responsible for making decisions with your other partners – but should set up a partnership agreement explaining how you will do this
- pay income tax on profits and must register for Self Assessment as an individual and as a partnership
- divide profits between partners with each person paying tax on their share
- can hire people to work for your business
Social enterprise
A social enterprise is a business with a social, community or environmental mission. It is not a legal business structure.
They can be set up as:
- community interest companies (CICs)
- private companies, limited by guarantee
- co-operatives
- private companies, limited by shares (although this is less common)