Comparing types of business entities

The table below contains the main features and operating rules of the most popular business entities:

 

Self-employed General Partnership Limited Company (ltd)
Who can set up the business? Each individual being of legal age. Two or more self-employed persons, and/or companies (ltd) and/or limited liability partnerships (LLP). One or more British or foreign individuals or/and corporations.
Special contract needed to set up the business? No. No, although a partnership agreement is recommendable. Yes. Memorandum of Association and Articles of Association.
Legal entity independent of its partners? No. A self-empoloyed person is fully liable for his business’s debts. No. Partners are fully liable for their partnership’s debts. Yes. Shareholders are liable for their company’s debts only up to the capital invested in it.
Sources of financing for the business Self-employed person’s own funds. Partners’ own funds. Shareholders’ investments in exchange for company shares.
Company name Self-employed person’s name or business name of choice. Partners’ names or business name of choice. Business name of choice plus the abbreviation “ltd”.
Incorporation at Companies House? No. No. Yes, by submitting a right form as well as Memorandum of Association and Articles of Association.
Registering with HMRC? Yes, for the purpose of Income Tax and National Insurance Contribution (NIC). Yes, to submit Tax Return. Yes, for the purpose of Corporation Tax.
Other formal requirements to register the business? No. No. Yes. A limited company must have at least one director who is an individual person.
Tax Return? Yes. The self-employed submit their Tax Return to account for all their income, including business profits. Yes, although the partnership does not pay its own income tax. Apart from that, partners must submit their own tax returns. Yes. Apart from that, shareholders must submit their own tax returns.
Income Tax? Yes. The self-employed do not pay a separate income tax on business profits, but an income tax on all their earnings accumulated, including business profits. No. Partnership does not pay its own Income Tax. Partnership’s profits are divided among partners. They have to pay their income taxes allowing for the profits from their partnership. Yes. Limited company pays its own Corporation Tax (Income Tax). Apart from that, shareholders must pay dividend tax on dividends from their company.
National Insurance Contribution (NIC)? Yes. The self-employed must pay NIC Partnership does not pay its own NIC. Partners must pay NIC if they are self-employed. Limited company does not pay its own NIC.
Mandatory book keeping and accounting? Yes. Yes. Yes.
Right to employ people? Yes. Yes. Yes.
Payroll (PAY) All employers must comply with the PAYE system.
VAT All businesses must comply with VAT regulations.
CIS (Construction Industry Scheme) All businesses involved in the construction industry must comply with the Construction Industry Scheme (CIS).
Other formalities? No. No. Yes. To submit Annual Return and Accounts to Companies House.

 

Capital Business Links Ltd will be happy to assist you in setting up and registering your business. Apart from that our specialists provide all types of business entities with professional accounting and bookkeeping services, including preparing income tax and VAT returns, payroll (PAYE) and CIS services. If you would like to learn more about our offer, please contact us on telephone number 0208 567 99 44 or at our e-mail address.