What Type of Business Model Should Your Company Opt for?

Types of Business Model

Sole Trading

Starting out as a sole trader is undoubtedly the easiest of our list. As a sole trader, you are simply self-employed. When you begin trading for yourself, you must register with HMRC as a self-employed sole trader. You must, as a sole trader, file for a self-assessment tax return. You are entitled to keep all of your profits as income and you can write off necessary expenses from your tax return. As a sole trader, there is no maximum amount of money for you to earn, although the more you earn, the more you will be taxed.

Partnerships

Partnerships are when two or more people come together and agree to share in the losses and the profits of a business, as well as sharing risks, costs, responsibilities of running a business, and benefits. Partnerships are unincorporated entities, and each partner is self-employed; the partners are personally responsible for the business and any of the losses or debts that the business accrues. The partners are responsible for the other partner’s negligence, also. In a partnership, profits are split evenly between partner’s, and equally, losses are split evenly and debts must be paid evenly. However, some partnerships develop profit-sharing ratios wherein a single partner earns more than another.

LLP

LLPs, or Limited Liability Partnerships, are partnerships similar to that we just mentioned, except that a partner’s liability is limited to the money they initially invested in the business. Additionally, an LLP must be registered with Companies House and HMRC. Accounts must be prepared and filed annually. LLP’s can incorporate with two or more members, and members can be companies or individuals. Each LLP member’s share of the profits and responsibility will be written down and set forward in the LLP agreement at the start of the business’s incorporation.

Members must also submit personal self-assessment returns yearly and pay income tax on the profits, as well as National Insurance contributions. In the United States, the equivalent of an LLP is an LLC. If one were to read a guide to forming an LLC, it would not be at all dissimilar from the LLP guide we have just written. LLP’s are the most common type of business in the U.K., and LLC’s are the most common in the United States.

Limited Company

Limited companies are private businesses, owned by the business’s shareholders and run by the business’s directors. These companies are separate legal entities, with their own obligations and rights, which means these companies are responsible for everything that they do, and the financers, or partners, are separate entities. Profits are held by the company, and when tax has been paid, they are distributed among shareholders as dividends. Limited companies can be limited to guarantees or to shares. They are required, like the other businesses here, to generate annual reports to Companies House and HMRC.

Which is Best for My Business?

The business model that you select out of the models that we have set forward requires careful deliberation and thought. You must apply your personal situation to the model and see if it fits. For example, if you are a sole trader, starting a partnership is impossible. If you work on your own, you should select the first of our guide, a sole trader ship. If you are with someone else but wish to remain small, then a partnership. There are benefits and takeaways from each of the business models that we have mentioned here, and it’s vital for you to research each one individually so that you can make the right decision and establish which is the best course of action for your business.

With the help of this page, you now know which type of business model may be best for your company, and which to opt for. Starting a business is a great way for you to achieve financial independence, and now is a better time than any.