Enhancing your company structure – Frequently asked questions

As a business owner, one of the most crucial factors is ensuring that your business is structured in the best way possible.

This impacts everything from taxes, legal liability, cash extraction and the ability to raise capital. Ensuring your business structure is right sets the foundations for growth and long-term success. 

What are the different types of business structures? 

• Sole traders – Sole traders are ‘self-employed’, which means they must register with HMRC for self-assessment as soon as they start trading.
• Partnerships – Partners within a partnership share responsibility for the business, they share the business profits, and each partner pays tax on their share.
• Limited liability partnership (LLP) – An LLP combines the flexibility of a partnership with the limited liability of a company. Similarly to a limited company, the LLP model protects its members’ assets.
• Limited liability company (LTD) – A private company is incorporated and limited by shares which are owned by shareholders. Shareholders have limited liability and are not personally responsible for the company’s debts. The business is run by directors and is a common business type.

For more information on business structure, there is further guidance on the government website here.

What factors do you need to consider? It is not a ‘one size fits all’ decision, there are various factors you need to consider with your business in mind such as:

• Liability protection – What level of personal risk are you willing to take? This will help determine what level of business structure is best for you, as they all offer different levels of protection. We often see businesses are not as protected as they can be, usually, there is another layer of protection that can be added. This includes even within limited company structures.
• Tax implications – Each structure comes with varying tax benefits and obligations; we recommend discussing with a tax adviser to ensure you choose the best and most tax-efficient route for your needs.
• Future needs – Is your structure right for business continuity? There are various aspects to look at regarding succession planning as part of your business structure. This includes ways in which you can maintain secure income out of the company but have passed the baton onto the next generation or key employees
• Control – Do you want full control over your business, or would you rather share the decision-making to help elevate the stress that being a sole business owner can bring?
• Intellectual property – Do you have intellectual property such as trademarks or registered designs? If not, do you have the potential to register these? It is also important to consider where the best place is to own these within your company structure as there are risks and tax opportunities to be thought about.
• Commercial property – Is your commercial property protected from risk and litigation, and protected from Inheritance Tax? If not, then this is something to consider within your business structure.

What steps can you take to ensure your structure is the best for your business?

• Seek professional advice – We always recommend seeking professional advice from a tax adviser to ensure that your business structure is correct and sustainable for your business. It may be beneficial for you to have a structure consultation, if this is something you are considering, feel free to arrange a free initial call with one of our tax advisers. 
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• Assess your financial situation – We recommend evaluating your current financial situation, and looking at future projections, to ensure that you are considering the future growth of your business too.
• Evaluate the risks – Evaluating the potential risk factors that your business may face is a key factor to ensuring that the business structure you choose, mitigates all the potential risks.

What pitfalls do we often see?

• Overlooking future growth – We often see business owners only consider the structure of their business for the present situation and don’t take into consideration future factors, such as business growth, succession planning, or business exit.
• Not considering tax consequences – It is crucial to consider the tax implications of your company structure and ensure that it is structured in the most tax-efficient way possible. We recommend speaking to a tax adviser as there may be an opportunity to restructure that you would benefit from.
• Underestimating the liability risks – It is important to ensure that your business structure has adequate liability protection to ensure that your assets are protected, and not at risk.

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For more information on how we can help you and your business, please contact us via email or phone and we will be happy to advise on the best solutions for your business.

Please note: This article is provided for information only and was correct as at the time of writing (12/09/24). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance.  No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.