Your business structure is the legal shape your business takes, and for most people in the UK it is a choice between two: sole trader or limited company. Sole trader is simpler and cheaper to run; a limited company separates the business's money and risks from your own. You can start as one and switch later — thousands do every year — so this is an important decision, not a permanent one.
At a glance
| Structure | In one line |
|---|---|
| Sole trader | You are the business. Simplest to run; you and the business are legally the same thing |
| Limited company | The business is its own legal entity. Protects your personal money; more admin |
| Partnership | Two or more people trading together, sharing profits and responsibility |
| LLP | A partnership where the partners' personal liability is limited |
| CIC | A limited company whose profits are locked to a community purpose |
The choice that matters: sole trader or limited company
Nine out of ten first businesses are choosing between these two, so start here.
Sole trader means you and the business are legally the same. You keep all the profit, pay Income Tax and National Insurance on it through Self Assessment, and your paperwork is a tax return once a year. The catch is in the word "same": if the business owes money, you owe money — there is no wall between business debts and your personal savings or home.
A limited company builds that wall. The company is its own legal person: it owns the money, signs the contracts, carries the debts. If it fails, your losses are normally limited to what you put in. In exchange you take on real admin — accounts and a confirmation statement filed at Companies House each year, records that are public, and paying yourself deliberately through salary or dividends rather than just taking the money.
How to actually decide. Three questions do most of the work. How much risk does the work carry — could a mistake or a bad debt follow you home? What do your customers expect — some larger firms and contracts will only deal with limited companies? And what will you earn — at lower profits, sole trader simplicity usually wins; as profits grow, a company's tax flexibility starts paying for its admin. The crossover point depends on your numbers and changes with tax rules, which is exactly the conversation an accountant earns their fee on.
Full detail on each: our sole trader guide and limited company guide.
The other three, briefly
Partnership — two or more people trading together as one business, sharing the profits and, importantly, the liability: in an ordinary partnership each partner can be personally liable for the whole business's debts, including ones a partner ran up. If you are building with someone else, a written partnership agreement is not optional paperwork, it is the thing that saves the friendship. More on partnerships.
LLP (limited liability partnership) — the partnership shape with the limited company's wall around personal assets. Common for professional firms — accountants, architects, solicitors — and registered at Companies House like a company.
CIC (community interest company) — a limited company for businesses that exist to benefit a community rather than enrich shareholders. Its assets and most of its profits are legally locked to that purpose, which is why councils and grant funders like them. The lock is permanent — you cannot later convert it into an ordinary company and sell it. More on CICs.
One term to ignore: if you have seen "LLC" in American videos and articles, it is a US structure that does not exist in the UK — the nearest UK equivalent is the limited company.
A worked example
Take Jamie, a plumber in Reading going out on his own. Year one, working alone with modest profits, he starts as a sole trader: registration is free, the paperwork is one tax return, and his public liability insurance covers the realistic risks of the work. Two years later the picture has changed — he is quoting for a contract with a housing association that only deals with limited companies, he has a van, stock and a part-time apprentice, and the profits have grown to where the tax arithmetic favours a company. So he forms a limited company because it suits where the business is at now. The switch takes a fortnight of admin.
Simply put, choose the structure that suits where you are now. You can always change it later.
Create a mini business plan in minutes with Plan.business. Put in your prices, hours and costs, and it works out your profit month by month — which is the number this whole decision turns on.
What each structure means day to day
| Feature | Sole trader | Limited company |
|---|---|---|
| Set-up | Free, minutes, HMRC | Small fee, Companies House |
| Your liability | Unlimited — business debts are your debts | Normally limited to what you put in |
| Tax | Income Tax + NI on profits via Self Assessment | Corporation Tax; you take salary and/or dividends |
| Paperwork | Annual tax return, good records | Annual accounts, confirmation statement, company records — public |
| Privacy | Your affairs stay private | Accounts and directors are on the public register |
| Paying yourself | The profit is simply yours | Deliberate: salary, dividends, or both |
| Switching later | Sole trader → company is routine | Company → sole trader is harder |
Figures correct as of September 2026. Tax thresholds, fees and rates change; check the linked GOV.UK pages before acting. Prices and costs shown are indicative and vary by area and by what's included.
What is Plan?
Plan is a free business operating system for people starting or newly running a UK business. It walks you, one simple step at a time, from your elevator pitch through brand, product and pricing, to a complete business plan — then uses everything it now knows about the business to help with the basics: logo and brand, marketing, a website, a bank account, funding, insurance, company registration. You can use as much or as little as you want.
Frequently asked questions
What is the most common business structure in the UK? Sole trader, by a distance — it is the default for most self-employed people because it is free to set up and simple to run. Limited companies are the next most common, typically chosen for liability protection, customer expectations or tax planning as profits grow.
Can I change my business structure later? Yes, and it is common. Sole trader to limited company is a well-worn path — you incorporate, tell HMRC, and move the business across. Going the other way is possible but messier. Choose the structure that suits where you are now — you can always change it later.
Is it worth being a limited company for a small business? It depends on risk, customers and profit. If a mistake could create debts you cannot cover personally, the liability wall alone may justify it. If your profits are modest and the work is low-risk, sole trader simplicity usually wins until the numbers say otherwise.
Do limited companies pay less tax? Sometimes, at higher profits, because companies pay Corporation Tax and owners can plan how they take income. But the gap is narrower than the folklore suggests and shifts with tax rules — treat "go limited to save tax" as a question for an accountant with your actual numbers, not a rule of thumb.
What is the difference between a partnership and an LLP? Liability. In an ordinary partnership, each partner is personally on the hook for the business's debts. An LLP wraps the partnership in limited liability, like a company, and is registered at Companies House. Professional firms usually choose the LLP for exactly that reason.
Two ways to do this
Work it out yourself, free. Plan walks you through the choice as part of setting up — your risk, your customers, your numbers — one short question at a time, in your browser. Do just this bit and stop there if that is all you need.
Or go straight to registering. Decision already made? Our company registration guide covers the how, the costs and what happens after — for either structure.