04: Business entity

You must decide whether to set up your business as a sole trader, partnership or limited company. Many start-ups are as a sole trader. This is usually the most flexible but you may pay more tax. Where two or more people are in business together, a partnership may be preferable. Partners need to be sure they can work happily together.

A limited company has several benefits but also some disadvantages. You may pay less tax and find it easier to raise finance, but there is more administration involved and anyone can look at your financial statements, at least in an abbreviated form. Sometimes it is best to start off as a sole trader or partnership and incorporate later. This can be beneficial if you expect your business to take a while to become profitable.