Whether you are setting up a new business or looking to expand an existing one, you will want to ensure you have the right vehicle to take you on your business journey.

It’s important to determine the legal structure of your business from the outset as this determines your tax liabilities, how you profit from the business and your responsibilities should the company fail. (This article deals with the issues relating to the law in England and Wales).

Types of Business Mediums for your Business Journey

  • Sole Trader. An individual running a business.
  • Partnership. Two or more people carrying on business in common with a view to profit.
  • Limited Company. A legal entity in its own right.
  • Family businesses. A company owned by a family. It can take any of the above forms but will normally be a limited company.

sole trader business journey

Sole Trader

• They will keep all after tax profits for themselves;
• They can still employ staff but the contract will be with them personally;
• They are personally responsible for any losses and debts amassed.

Advantages Disadvantages
 Limited administration effort  Unlimited liability for debts
 Privacy/Personal  No one to help in decision making
 Flexible  Capacity to raise capital

What if things go wrong?

A sole trader can decide to stop trading at any time. They’ll still be personally liable for any debts incurred if they do stop trading but otherwise they are free to do as they wish.


• Those entering a partnership will need to choose a name, a ‘nominated’ partner and register with HMRC;
• There must be at least two partners and one can be a company;
• The nominated partner must send a partnership tax return and each individual partner must do their own self-assessment;
The Partnership Act 1890 sets out the duties of each partner;
• All partners are liable for any losses or debts.

Advantages Disadvantages
 No set up costs  Unlimited liability
 Share the burden  Slower decision making
 Flexible  Sharing the profit

You can set up a Limited Liability Partnership, which can limit some of the liability of the partners.

What if things go wrong?
A Partnership should put in place an agreement from the outset of the relationship, which sets out the parameters of how the business will be run.

This can also determine what will happen if there are conflicts in decision making and when a partner can be compulsory retired or expelled. Further, the agreement can set out how the Partnership can be wound up/dissolved.

If you don’t have such an agreement, then it may be more difficult to resolve disputes, leaving you exposed to a decision on areas that you’re not happy with. Remember it’s never too late to put in place an agreement to formalise your business relationship.

ltd company business journeyLimited Company (by shares)

• The company needs to be set up with Companies House;
• All profits are owned by the company so the company is free to re-invest or share as it sees fit;
• The company needs to be registered with HMRC and pay corporate tax;
• Directors have a number of duties to the company.

Advantages Disadvantages
 Limited liability for debts  Can be complex to set up
 Some tax advantages  Complex accounting rules
 Professional status  Restrictions on raising capital via shares

What if things go wrong?
When a company is set up it should put in place articles of association, shareholder agreements and director service agreements, all setting out how the company will be run. These can then be referred to should a dispute arise.

If you opt for an off the shelf company, one already set up, the risk is that you then have standard documents that have not been adapted to suit your business interests. Such companies also do not come with shareholder agreements.

Investing in a tailor made company from the outset could save you money in legal fees later down your business journey should problems arise.

Again, if you do not have documents in place for your business you could end up with a decision on how your company is run that you’re not happy with.

family businessFamily business

• Given the dynamics of a family run business, they need both corporate governance to determine how the company will be run and family governance to set out the family’s relationship with the   board;
• In all other respects such companies will be the same as a limited company and have the same   legal duties.

What if things go wrong?
Having in place a family charter or constitution can help set out the roles of family members and what will happen in disputes. Without formal documents, decisions may no longer be in your hands.


One of the keys to a successful business journey is ensuring you have in place the right documentation from the outset. This ensures disputes are resolved early on, helping you prevent time and costs in dealing with them later.

Remember, you can change your company structure at any time to fit your changing business journey.

business journeyLaura Pearce, Senior Solicitor at JFH Law LLP (Email: lpearce@jfhlaw.co.uk)

About Laura:

laura pearce business journeyLaura is a senior solicitor at JFH Law advising businesses and dental practices on matters, including employment law, HR issues, contracts, consumer and commercial disputes, professional disciplinary and regulatory. Laura can assist you at every step of the way; draft documents, advising on disputes, seeking resolutions and preparing for court proceedings. Laura’s approach is professional but friendly. She will guide you through any issue offering robust legal advice along with practical solutions for your problem. Contact her here >>>