Business Structuring
Choosing the correct Business Structure
Your business structure affects how much you pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability.
You'll need to choose a business structure before you register your business with the authorities.
It is important to make the right choice at the outset. While you may convert to a different business structure in the future, it is unlikely to be straightforward. This could also result in tax consequences and unintended dissolution, among other complications.
Common Business Structures
Sole Proprietorship
A sole proprietorship is easy to form and gives you complete control of your business. You're automatically considered to be a sole proprietorship if you do business activities but don't register as any other kind of business.
Sole proprietorships do not produce a separate business entity. This means your business assets and liabilities are not separate from your personal assets and liabilities. You can be held personally liable for the debts and obligations of the business. Sole proprietors are still able to get a trade name. It can also be hard to raise money because you can't offer shares, and banks are also often hesitant to lend to sole proprietorships.
Sole proprietorships can be a good choice for low-risk businesses and owners who want to test their business idea before forming a more formal business.
Partnership
Partnerships are the simplest structure for two or more people to own a business together. There are two common kinds of partnerships: normal unlimited partnerships and limited liability partnerships (LLP).
Profits are passed through to personal tax returns.
Limited liability partnerships give limited liability to every owner. An LLP protects each partner from debts against the partnership and they won't be responsible for the actions of other partners.
Partnerships can be a good choice for businesses with multiple owners, professional groups (like law firms), and groups who want to test their business idea before forming a more formal business.
Limited Company
A Limited Company lets you take advantage of the benefits of both the sole proprietorship and partnership business structures.
Limited Companies protect you from personal liability in most instances. Your personal assets — like your vehicle, house, and savings accounts — won't be at risk in the event your Limited Company faces bankruptcy or lawsuits.