Business formats

Many businesses start organically as sole trader enterprises, evolving into partnerships or companies as they grow. But what are the other options?

Incorporated v unincorporated

Business formats fall into two categories: incorporated and unincorporated. The most popular overall is sole trader: around half of businesses take this form. Most incorporated businesses are private companies limited by shares. For many, the decision to incorporate is based on financial advice regarding the tax advantages. However, there are other considerations to bear in mind.

Incorporated businesses have their own legal personality, which separates out the liability of those who own and run a company or other incorporated business from the business itself. However, the owners and managers have responsibilities to run the business in its interests, not their own. Incorporated businesses have reporting obligations and information about their management, ownership and finances is made available through Companies House (or other regulator, depending on their form).

The owners of an unincorporated business are personally liable for its debts and obligations, and are taxed personally on the business’ profits. However, these businesses are not subject to the same level of regulation as companies and other incorporated businesses and can keep their information private.

The form of a business is a matter of choice, usually driven by tax considerations. For certain types of enterprise, such as those for the benefit of the community, specialist forms are likely to be the best fit.