Guide to Types of Businesses 

Choosing the right business structure is one of the most important decisions you’ll make when starting a business in the UK. The structure you select will determine your legal responsibilities, tax obligations, and personal liability, with implications for how you manage and grow your enterprise. This guide provides definitions of five key business structures. Sole traders, limited companies, Limited Liability Partnerships (LLPs), Community Interest Companies (CICs), and Public Limited Companies (PLCs), drawing on official UK government sources to help you understand your options. 

1. Sole Traders 

A sole trader is the simplest business structure to set up and keep records for [1]. Sole traders make all the business decisions and keep all the profits after paying tax [2]. This structure is ideal for individuals who want to run their own business with minimal administrative requirements. As a sole trader, you are personally responsible for all business debts and liabilities. You must register with HM Revenue and Customs (HMRC) for self-assessment and pay income tax on your profits. Record-keeping requirements are straightforward compared to other business structures, making it an accessible option for many entrepreneurs starting out. 

2. Limited Companies 

A limited company is one way to set up a business that is legally separate from the people who own it [3]. A company director is responsible for running the business [4]. Limited companies have ‘limited liability’ which means owners are responsible for business debts only up to the value of their financial investment, providing protection if things go wrong [5]. Directors must follow legal, financial and other responsibilities including keeping company and accounting records, filing annual accounts and Company Tax Returns, and paying Corporation Tax [6]. Limited companies can apply for business loans and investments [7]. Companies are run by one or more directors and require registration with Companies House [8]. 

3. Limited Liability Partnerships (LLP) 

A Limited Liability Partnership (LLP) is a business structure that combines elements of partnerships and limited companies. Setting up an LLP brings many obligations, and it may be worthwhile taking advice from a solicitor or accountant to check whether an LLP is the best way to run your business. LLPs must be incorporated with Companies House and require specific filings relating to incorporation and naming. Like limited companies, LLPs provide limited liability protection to their members. The structure is particularly popular among professional service firms such as solicitors and accountants. Members of an LLP have flexibility in how they structure profit-sharing arrangements while benefiting from corporate legal protections. 

4. Community Interest Companies (CIC) 

A Community Interest Company (CIC) is a limited company with special additional features, created for people who want to conduct a business or other activity for community benefit, and not purely for private advantage [4]. CICs combine the flexibility and certainty of a company structure with specific features ensuring they work for community benefit. They have an ‘asset lock’ which ensures assets are retained within the CIC or transferred to another asset-locked organisation if the CIC is dissolved. CICs must demonstrate that their activities provide benefit to the community and are subject to regulation by the CIC Regulator. They can be formed as new companies or converted from existing company structures. 

5. Public Limited Companies (PLC) 

While the gov.uk sources provided limited specific detail about Public Limited Companies, they are a type of limited company structure in the UK [5]. PLCs must have a minimum share capital and can offer shares to the public, unlike private limited companies. They are subject to more stringent regulatory requirements than private limited companies, including detailed accounting and reporting obligations. PLCs pay Corporation Tax on their profits [6] and must comply with all Companies Act requirements for registration, filing and disclosure. Directors have significant legal responsibilities for ensuring compliance [7]. PLCs are typically larger organisations and may be listed on stock exchanges, providing opportunities for public investment and greater capital raising potential. 

Summary 

The choice of business structure affects how you pay tax, your legal responsibilities, and your personal liability. Most businesses register as a sole trader or limited company, though other structures exist for specific purposes [1]. You can move from one business structure to another, though it’s usually easier to move from being a sole trader to a limited company [1]. Companies House, an executive agency sponsored by the Department for Business and Trade, incorporates and dissolves limited companies and registers company information, making it available to the public [8].