The First Legal Step on your way to Dragon’s Den

You’ve taken that leap, you’ve told your boss that you aren’t working for them anymore or perhaps after raising your family it’s time for you to chase that dream. It’s time to put pen to paper and figure out how you need to shape your strategic goals. It is important to realise that even at these embryonic stages the decisions you make today will affect your success in the future. The first key decision you need to make is to choose the right legal structure that you will follow. Your goals, ambitions, risk appetite and ultimately your actual business operation will determine the most appropriate for you. Here we will look at the 4 most common business structures; Sole Trader, Limited (Ltd) Companies, Partnerships and Limited Liability Partnerships (LLP).

Sole Trader

If you intend to operate as business as just yourself and not employ any other staff or wish to be considered as ‘self employed’ then Sole Trader is an attractive option. The great thing about operating as a Sole Trader is that it is inexpensive to set up and the business can be operated very easily. As a sole trader you will make the decisions yourself with no delays in waiting for dreaded board approvals or investor hang-ups. You should be very aware however, the law makes no difference between your businesses liabilities or losses and you. You must register with HMRC as soon as you start trading, even if you do not believe you will make any money, you could face a penalty or fine if you don’t. The pro’s and con’s of starting as a Sole Trader are as follows:

Pro’s Con’s
Easy to set up You are liable for business losses and liabilities
Easy business model to operate Profits taxed as income by HMRC
Less bureaucracy Tax returns to be completed each year
Little or No set up fees Business won’t continue in the event of owners retirement or death

Ltd Companies

 The Limited company business model option provides more personal protection than operating as a Sole Trader, the law distinguishes the identity of the business and the individual. This means that you are usually not personally liable for the business debts. The model is called limited as the business’s debts are limited by the share capital issued. Going the route of setting up a limited company has many positive attributes, it looks professional, appears bigger than it may actually be and you get to register a company name. The start up of this model is somewhat more complex and requires more investment than a Sole Trader model. The pro’s and con’s of starting as a Ltd company are:

Pro’s Con’s
Separate legal entity More expensive to set up
Appears more professional Full company accounts to be submitted to Companies House each year
You are known as the Director of the company Your business affairs are published annually for all to see


A partnership is effectively the same business model as a Sole Trader when there are 2 or more people involved. Within a partnership the partners personally share all responsibility for the business, including losses and liabilities. However, be aware that within a partnership you have a legal right imposed called ‘joint and several liability’ which means you could find yourself with 100% of the business debts in certain circumstances. It is wise to choose partners carefully in this model. The pro’s and con’s of a partnership are the same as a Sole Trader, except for:

Pro’s Con’s
More people to input into the business Any legal proceedings can cause tensions


Similar to a Ltd company, a LLP is a partnership where some or all partners will have limited liabilities (dependent on the jurisdiction). Under the Partnership Act 1890 a LLP is very different to a Partnership in that each LLP each partner is not liable or responsible for another partners misconduct or negligence. The pro’s and con’s of a LLP are:

Pro’s Con’s
Has the benefit of the Ltd company and partnership Profit taxed as income
Members agreement can outline jurisdiction Full financial disclosure of all partners


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