Types of business ownership

Choosing the right ownership structure is an important decision every business owner needs to make when starting their business. The type of business ownership you go for will affect everything from your tax obligations to the level of risk you carry, and in what way you can grow your business.

In this guide, we’ll walk you through the main types of business ownership structures in the UK – sole trader, partnership, limited company, LLP and a few less common structures. We’ll break down some of the pros and cons of each, explain some of the legal and tax considerations, and provide some of the key information to help you decide which structure best fits your goals.

Remember: If you’re looking for more information specific to your situation, it’s always worth considering seeking expert advice from a professional tax, legal or financial advisor.

What is business ownership and why does it matter?

Business ownership refers to the legal structure of your business. It determines who’s responsible for what—financially, legally, and operationally.

Choosing a structure that aligns with your goals and circumstances can give your business a strong foundation. On the other hand, some structures may involve more admin, tax obligations, or personal liability than others. The most suitable option depends on what you’re building, your personal situation, and where you see the business heading.

There’s no one-size-fits-all answer—and what works well today might need to evolve as your business grows. But for today, let’s look at some of the main types of business ownership…

Sole trader

Going it solo is the simplest and most common form of business ownership in the UK. Government data in 2024 shows that 56% of British businesses are sole traders, an increase of 12% since 2010. So why is sole trader ownership working for more and more people?

Simplicity is a big factor. As a sole trader, you run the business as an individual. You keep all the profits after tax, but you’re also personally responsible for any debts.

Key legal info: You must register as self-employed with HMRC but you don’t need to register the business with Companies House.

Suitable for: Freelancers, side hustlers, and small businesses with low to moderate turnover and minimal complexity. Ideal for those who want full control and have limited liability concerns.

Pros

• Relatively easy and cheap to set up, with minimal paperwork
• Full control over business decisions
• Fewer accounting and reporting requirements than other business structures

Cons

• Unlimited personal liability – your personal assets may be at risk of work falters
• Sole traders may appear less credible to larger clients or investors compared to other business types, like limited companies
• It can feel isolating as all decisions and responsibilities rest on you

Partnership

Team up with two or more people to share your business’s responsibilities, decision-making and profits and you’re in a partnership. It’s a collaborative way to run a business while pooling skills and resources.

There are two main types of partnership in the UK:

• Ordinary (or general) partnerships – all partners share responsibility and liability equally. As with sole traders, the business is not a separate legal identity
• Limited partnerships — all partners have limited liability, depending on their role. Limited partnerships must register with HMRC

Partnership agreements

Creating a formal partnership agreement is best practice. A legal document, it outlines the roles, responsibilities and terms of your partnership and runs through details like profit sharing, decision-making processes, dispute resolution and the procedure for adding or removing partners. It helps keep everybody’s role clear and prevents conflicts down the line, which means it’s worth its weight in gold.

Suitable for: Small teams starting a business together, especially where complementary skills or shared responsibilities are valuable. Typically best for low to medium complexity ventures that don't require outside investment.

Pros

• You can share responsibilities appropriately – workload, decision-making and startup costs
• The whole can be greater than the sum of its parts with your and your partners’ combined skills, contacts and resources
• More flexibility in management and operations – you can adapt to changes quickly and make decisions collaboratively

Cons

• Joint liability for debts – in ordinary partnerships
• Disagreements can strain relationships and progress
• Each partner is taxed individually on their share of profits, making managing the finances more complex

Limited company (Ltd)

Create a limited company and you create a separate legal entity. That means the business, not the company director (likely you), is responsible for its debts. Any shareholders are usually only liable up to the value of their shares.

Key legal info: You must register the business with Companies House to become a limited company. Directors have legal responsibilities including (but not limited to) acting in the company’s best interests, paying corporation tax, keeping company records and submitting the required filings.

Suitable for: Growing businesses with medium to high turnover, or those looking to attract investors or scale. Ideal for founders seeking limited liability and more tax planning options.

Pros

• Limited liability — personal assets are protected
• May be more tax efficient once you start earning more
• May be seen as more professional or credible than sole traders
• Easier to raise capital and scale operations

Cons

• Admin duties – annual accounts, corporation tax returns, company filings, etc
• Public disclosure of shareholders, persons with significant control, directors, accounts and financial performance
• Money belongs to the company — profits can only be taken as salary or dividends

Limited liability partnership (LLP)

A limited liability partnership is a hybrid between a partnership and a limited company. It gives partners (aka ‘members’) the flexibility of a partnership but with the protection of limited liability.

Key legal info: LLPs must register with Companies House and file annual accounts. Members are taxed individually via self-assessment.

Suitable for: Professional services firms (e.g., law, accounting, consultancy) where partners want operational flexibility and limited liability. Works best for collaborative ventures needing credibility and additional governance.

Pros

• Limited liability – members’ personal assets are protected
• Flexible internal structure – customise management and profit-sharing arrangements
• Partners taxed individually, not via the LLP itself

Cons

• Must comply with Companies House reporting requirements
• LLP admin usually costs more compared to other types of partnerships
• Public disclosure of LLP members, persons with significant control, accounts and financial performance

Other business ownership types

You’ve likely heard of all the business types we’ve talked about above, as they cover the vast majority of needs when it comes to starting a company. But there are also several less common structures worth looking into, especially if you’re launching a social impact or community-focused enterprise.

Community Interest Company (CIC)

A CIC is a limited company structure tailored for social enterprises with the aim of benefitting the community by reinvesting profits for public good. To qualify, the business must pass a community interest test to demonstrate its societal purpose, and submit an annual CIC report outlining its activities and how it used its profits to benefit the community.

Charitable Incorporated Organisation (CIO)

CIOs are specifically designed for charities looking for the advantages of incorporation, like legal protection and a clear governance framework, without the need to register as a limited company. Set up a CIO and you’ll be regulated and overseen by the Charity Commission to make sure you comply with charitable laws and standards.

Cooperative

Cooperatives are owned and operated by their members who can be workers, consumers or suppliers, depending on the type of cooperative. Members actively participate in decision-making and profits are typically distributed among them. This ensures benefits are equally shared and helps put focus on mutual support rather than maximising external profits.

Non-Profit Organization

Focused on achieving a mission rather than generating profit, non-profits reinvest any surplus revenue to further their goals, which often address social, educational, cultural or environmental issues. Typically exempt from taxes, they rely on donations, grants and fundraising for operational support. Non-profits are accountable to their stakeholders and closely regulated to ensure they remain transparent and aligned with their stated mission.

How do you choose the right ownership structure?

The business ownership structure you choose will impact your legal liability, tax obligations, operational flexibility and even future growth potential. To make an informed decision, consider the following framework:

Factors to consider

1. Understand your goals

Start by identifying the long-term vision for your business. Are you looking to grow quickly or do you intend to operate on a smaller, more local scale? Assessing your goals will help you determine whether a sole trader, partnership, limited company or limited liability partnership (LLP) aligns best with your plans.

2. Evaluate your liability risks

Some ownership structures offer more personal liability protection than others. For example, limited companies and LLPs typically shield personal assets from business debts, while sole traders and partnerships don’t. Consider the level of risk involved in your industry and decide how comfy you are with personal liability.

3. Consider the tax implications

Different structures come with distinct tax benefits or obligations. Review how your profits and losses will be reported and taxed under each structure. Work with a tax professional to understand how these factors might apply to your business without making any financial decisions yourself.

4. Explore flexibility and control

Think about the level of control you want over the business. Some structures like sole traders or companies with a single shareholder and director, allow for full control, while partnerships, LLPs or larger companies may mean you have to share decision-making or be subject to oversight from a board of directors.

5. Plan for growth and succession

If you anticipate expanding your business, think about how the ownership structure could impact future investments, partnerships or transitioning the business to new ownership. Structures like limited companies can make it easier to attract investors and transfer ownership.

6. Review all regulatory requirements

Each company structure comes with its own set of regulatory and legal obligations. Limited companies, for instance, often require more paperwork and disclosure compared to sole traders. Investigate the compliance requirements of each structure to make sure you can meet them.

Seek expert guidance 

While this framework provides a starting point, the nuances of your business may require tailored advice. Consider consulting with legal, financial and tax professionals to weigh your options and choose the structure that best aligns with your needs and aspirations.

Can you change structure later?

Yes – lots of businesses evolve their structure as they grow. You may start as a sole trader and later incorporate as a limited company. Or your partnership might become an LLP.

It’s important to get professional advice before changing – it can affect your tax, contracts, reporting and other obligations.

Looking to register your limited company? 

If you’ve gone through the options and have decided your business would be best served by a limited company structure, the next step is to make it happen. You could of course go through the long-winded route or you could use Zempler Bank’s company formation service to help register your business in just a few easy steps.

And once you’re set up, our digital-first business account makes it easy to keep control over your finances. through built-in tools like smart expense tracking and real-time financial insights.

No paperwork. No hidden fees. Just a better way to bank.

Final thoughts

Choosing the right type of business ownership structure is more than a legal formality. It’s a decision that influences not just your day-to-day business operations but also has a broader impact on your obligations as a business owner.

For further guidance, check out:

• GOV.UK – Set up a business
• Companies House
• HMRC – Working for yourself