Forming a company: Choose your trading type

The way you decide to trade will depend on your situation. Of course you can change your trading type when you’re up and running but it takes time and money so it’s best to get it right first time.

Forming a company: choosing your trading type

Forming a company: choosing your trading type

Sole Trader

Many small businesses find this the most practical solution. It’s certainly the simplest way to run a one-person business. It’s more simple and easier to set up than a limited company, also you won’t have anyone else to answer to.

All the profits from the business will be yours but you’ll also be liable for any business debts. If you’re self-employed you need to register with HM Revenue & Customs.


Two or more self-employed people working together sharing the profits and losses. You should be aware that each partner is personally responsible for the losses even if someone else caused them. If you’re entering into a partnership, it’s a good idea to draw up a written agreement between partners to protect individual interests. For more advice, speak to an accountant or solicitor.

Limited Liability Partnerships (LLP)

This is organised and taxed like a partnership but it offers limited liability for business debts. Two or more individuals or limited companies share in the costs, profits and responsibilities of the company. LLPs must be registered at Companies House and annual accounts need to be filed. Members can limit their personal responsibilities, but there needs to be at least two designated members who have additional responsibilities placed upon them by law. Fact: The most common type of trader is a sole trader. There were 2.5 million sole traders at the start of 2003, accounting for 63% of the total number of businesses. Partnerships numbered nearly 540,000 and the remaining 960,000 were registered companies.
Mintel Small Business Banking UK Sept 04
Limited Company This is generally more complicated and expensive to set up than a partnership or sole trader business. To become a limited company, you must create and send a Memorandum and Articles of Associations, along with a registration fee and documents, to Companies House. These documents outline the following:
  • Company name – there are some restrictions on words you can have in your name and it can’t be the same or similar to one already registered.
  • Registered address – this isn’t always where you operate the business from. Often it will be the home address of a Director or the office of the company’s accountant or solicitor.
  • What the company will do – keep this broad such as ‘commercial retailer’ as your activities will be limited to this.
  • Details of Company Directors
  • How the Company will be run
  • Rights of the Company’s shareholders.
Companies House can help you with completing forms and Company names but not with the content of any documentation. Annual accounts must be submitted to Companies House and for a fee, anyone can look at them. Limiting your personal liability is the main advantage of setting up a limited company. As a rule you will only lose the amount invested in the Company should anything go wrong. The Company can also continue after the original Directors leave, giving the Company a longer life-span than a partnership or sole trader. Tip: For more information, on Limited Companies and LLPs refer to the Companies House website at  

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