When starting a new business venture there are several options which you could consider. These are as follows:
A sole trader is one person operating as an individual business. The person is the business which means that liability starts and ends with that person. If the business fails, that person could lose their own personal assets. Self-employed construction workers are often sole traders.
This is generally two or more people working together. This is often how a family run business starts. Some family businesses fail to have a written partnership agreement which is then called a Partnership at Will. A Partnership at Will is governed by the terms set out in the Partnership Act 1890 which is very outdated piece of legislation. As such it is best to have a written Partnership Agreement. The biggest disadvantage of an ordinary partnership is that there is an unlimited liability for any debts of the partnership. Much like a sole trader, if the partnership fails, creditors can pursue the personal assets of the partners themselves.
A limited partnership is allowed to have a limited partner whose liability is limited. However, the limited partner must not control or manage the limited partnership, must not have the power to take binding decisions on behalf of the limited partnership, and must not remove his/her contributions to the limited partnership for as long as it is in business.
Limited Liability Partnership:
This form of partnership has become increasingly popular over recent years. A limited liability partnership is a separate legal entity. Liability of the partners is limited to their agreed contribution to the limited liability partnership. It is governed by the Limited Liability Partnership Act 2000, and it must be registered with the Registrar of Companies. They require two or more people. Limited Liability Partnerships are not required to pay corporation tax. Essentially, it is a hybrid between a partnership and a limited company.
Private Limited Company:
This is also a separate legal identity. Liability of its members is limited by its constitution. It is governed by the Companies Act 2006. A private limited company can be limited by shares or by guarantee. Usually, they are limited by shares. To set up a private limited company you can either by a shelf company (one which is already formed) and tailor it to your needs, or you can set one up from scratch (register a new company). To register a new private limited company, limited by shares, you will need to complete an application for registration, a memorandum of association for the company, articles of association for the company, and then send all the documents to the Registrar of Companies with the applicable fee.