Choosing the right structure for your business

When starting a new business, one of the most important decisions you'll make is choosing the right structure. The structure you select impacts legal obligations, tax responsibilities, decision-making, and how you can grow your business. 

Boost business adviser, Lateef Badat, who is part of the Boost Flying Start team, has many years' experience in supporting startups and growing businesses. He is often asked, “what type of business should I start?”. Here he explores some of the most common structures, along with their advantages and challenges, to help you make an informed decision.

1. Sole trader

This is the simplest and most popular structure for individuals starting a business on their own. You are responsible for the business and its profits, but there’s no legal separation between you and your business. This means you’re personally liable for any debts.

Advantages:

• Easy to set up and low-cost
• Full control over business decisions
• Simple tax and accounting requirements

Challenges:

• Unlimited liability – personal assets are at risk if the business faces financial trouble
• Can be harder to raise capital.

Most suitable structure for: Freelancers, consultants, and small businesses with low risk.

2. Partnership

A partnership involves two or more people sharing ownership of the business. Each partner contributes to the business, whether through funding, skills, or labour, and profits are shared. There are two main types of partnerships: general partnerships (where all partners share equal responsibility) and limited partnerships (where one or more partners have limited liability).

Advantages:

• Shared responsibility and risk
• Access to complementary skills and resources
• Easier to raise capital compared to sole traders.

Challenges:

• Shared liability – each partner can be personally liable for the partnership's debts
• Disagreements between partners can arise, which might affect the business.

Most suitable structure for: Businesses with two or more owners, particularly those with complementary skill sets.

3. Limited Company

A limited company is a legal entity separate from its owners (shareholders). This means personal assets are protected in the event of business failure. A limited company can be either a private limited company (Ltd) or a public limited company (PLC).

Advantages:

• Limited liability shareholders’ personal assets are protected
• Greater ability to raise capital by selling shares
• Tax efficiency – corporation tax is often lower than income tax.

Challenges:

• More regulatory requirements and complex administration
• Detailed reporting and record-keeping obligations.

Most suitable structure for: Businesses planning to scale, raise investment, or limit personal risk.

4. Social Enterprise

A social enterprise is a business with a social purpose at its core. While they generate revenue, their primary goal is to make a positive impact on society or the environment.

Advantages:

• Ability to combine profit with purpose
• Eligible for specific grants and funding opportunities aimed at social enterprises.

Challenges:

• Balancing social mission with financial sustainability
• Potential limitations on profit distribution, depending on the structure.

Most suitable structure for: Entrepreneurs looking to make a social or environmental impact while running a business.

5. Community Interest Company (CIC)

A CIC is a specific type of limited company designed for businesses that want to use their profits and assets for public good. It combines the benefits of a limited company with a clear social purpose.

Advantages:

• Flexibility of a limited company while having a social mission
• Eligible for grants and funding aimed at socially responsible businesses.

Challenges:

• Cannot distribute profits like a traditional limited company
• Must comply with specific regulations, such as submitting a community interest report.

Most suitable structure for: Businesses focused on benefiting the community while retaining the legal protection of a limited company.

6. Co-operatives

A co-operative is an organisation owned and run by its members, who share in its profits and decision-making processes. Co-operatives can operate in various sectors and are usually focused on benefiting their members, whether they are employees, customers, or suppliers.

Advantages:

• Democratic decision-making – each member has a vote
• Profits are distributed among members
• Strong sense of community and shared purpose.

Challenges:

• Can be slower to make decisions due to the democratic process
• Can struggle with raising capital.

Most suitable structure for: Businesses with a strong sense of community and a desire for shared ownership and democratic governance.

Conclusion: Which Structure is Right for You?

The best structure for your business depends on your goals, the level of risk you're comfortable with, and how you plan to grow. If you’re starting small and want simplicity, a sole trader or partnership may be ideal. If you're aiming for growth and want to limit personal liability, a limited company offers the most protection.

For those with a social mission, a social enterprise, CIC, or co-operative might be the best fit.

Always consult with a legal or business adviser to ensure that your chosen structure aligns with your long-term vision and meets any regulatory requirements.

About the author

Lateef has a long track record in supporting people working in the creative, digital and media sectors who may struggle with their confidence and resilience. Through his coaching, Lateef helps them to develop a business mindset by addressing areas including career progression, imposter syndrome, time management, business focus, leadership, and accountability.

As a Boost Flying Start business adviser, Lateef provides one-to-one business advice, mentoring, coaching to pre-start and startups. Coining himself as a ‘mindset magician’ Lateef helps business owners and teams to work smarter and perform better through empowerment, motivation and inspiration.

If you’re looking to grow, scale or start your business, use Boost; Lancashire’s Business Growth Hub. We offer a range of funded business support services. Call our Business Support Helpdesk on 0800 488 0057 to find out more or complete our enquiry form.