Starting a new business is a big and exciting step, and choosing the right legal structure early on can make everything else smoother from tax and funding to daily decision‑making. While it may feel like a lot to take in, understanding your options will help you build a business that’s safe, compliant and set up for success.
Here is a clear, accessible overview of the main legal structures in the UK and some key regulations you’ll need to be aware of along the way.
Sole Trader (Sole Proprietorship)
Becoming a sole trader is the simplest way to start a business. You retain full control and keep all profits after tax. To begin, you’ll need to register for Self Assessment with HMRC.
Do remember that as a sole trader, there’s no legal distinction between you and your business. That means you’re personally responsible for any debts or legal issues that arise. For small or lower‑risk startups, however, this remains a popular and straightforward option.
Partnerships
If you’re starting your venture with one or more people, a partnership may feel like the natural fit. Each partner shares responsibility, profits and decision‑making. You’ll also need to register the partnership with HMRC.
It’s strongly recommended that you create a formal partnership agreement. This document outlines how profits will be shared, how decisions are made and what happens if someone leaves the business helping prevent disputes later.
Limited Liability Partnership (LLP)
An LLP offers the flexibility of a partnership but adds the protection of limited liability. This means your personal assets are generally protected if something goes wrong. LLPs must register with Companies House and meet annual reporting requirements.
LLPs also need to prepare and file accounts each year. While this involves more administration, the structure is often preferred by professional service businesses or joint ventures due to its blend of flexibility and protection.
Limited Company
A limited company is a separate legal entity, which means your personal finances are shielded from business liabilities. You’ll need to register your company with Companies House, adopt Articles of Association and meet annual reporting requirements.
Limited companies must also file:
- Annual accounts
- A Confirmation Statement
- A Corporation Tax return (CT600)
For founders planning to grow, bring in investment or increase credibility with customers and lenders, this structure often provides the greatest long‑term benefits.
Community Interest Company (CIC)
If your business’s main purpose is community benefit rather than private profit, a CIC could be the ideal option. CICs are regulated to ensure they operate with genuine social purpose.
Every CIC must submit a Community Interest Statement (Form CIC36) when applying:
This explains:
• What your CIC does
• Who your CIC will benefit
• How profits will be used
You’ll also need:
- Form IN01 (company registration)
- Memorandum and Articles of Association including an asset lock
Additional guidance can be found here
CICs must submit annual accounts, a Community Interest Report, and, where relevant, PAYE/VAT returns. While they can trade and employ staff, dividend payments (if applicable) are capped at 35% of retained profits to ensure the community remains the focus.
Co-operatives
Co‑operatives are businesses that are jointly owned and democratically controlled by their members, whether those members are customers, employees, local residents or independent businesses. They operate according to seven internationally recognised principles, including democratic member control (“one member, one vote”), voluntary and open membership, shared economic participation and concern for community. Unlike investor‑owned companies, co‑operative profits are reinvested into the business, used for community benefit or shared among members in proportion to their involvement not removed by external shareholders.
Co‑operatives can take many forms, such as consumer co‑ops, worker co‑ops, community co‑ops, multi‑stakeholder co‑ops and co‑operative consortia, giving people meaningful ownership of organisations they rely on. This shared ownership often boosts productivity, encourages innovation and strengthens long‑term commitment while supporting local economies. In the UK, co‑operatives have significantly higher survival rates than traditional businesses and contribute billions to the economy each year, demonstrating the wide‑ranging benefits of collaborative, values‑driven enterprise.
Charities
If your organisation’s aim is entirely charitable, you may wish to register as a charity. To qualify, your purpose must be charitable in law, and you must demonstrate public benefit.
Most charities must register with the Charity Commission if their annual income exceeds £5,000:
You’ll need:
- A governing document
- At least three trustees
- Clear charitable objectives
- Evidence your activities will benefit the public
Charities face stricter regulation but enjoy high public trust and may access grants and tax relief unavailable to other structures.
Choosing the Right Path
There’s no single “best” legal structure only the one that suits your goals, risk appetite and plans for growth. Whether you want simplicity, flexibility or long‑term protection, choosing carefully will help you build strong foundations for your business.
If you’re ready to take the next step, our practical, easy‑to-follow guide can help you move forward with confidence.
👉 Download our Business Start Up Guide