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Is setting up a private limited company the only option for starting a business?

Setting up a private limited company is not the only option for starting a business.

If you are starting a business on your own you can consider setting up as a sole trader. This means that you personally are in business, without needing a separate business structure like a company. Setting up as a sole trader is an option even if you have employees, as long as you are the only owner of the business.

Or, if you are starting a business with other people, you can set up a traditional business partnership. Each partner is self-employed and is entitled to a share of the partnership’s profits — but also responsible for any business debts.

Alternatively, you can form a private limited company or a limited liability partnership (LLP). LLPs operate in a similar way to a business partnership, but the individual partners have more protection against being liable for business debts.

Each type of business structure involves different costs, paperwork, tax implications and levels of personal risk. For example:

  • Self-employment is a common choice for small businesses, often with no other employees. Setting up as a sole trader (or business partnership) is relatively inexpensive and straightforward. But you are personally liable for business debts if the business goes badly.
  • A private limited company is the easiest business structure to use if you want to raise money from outside investors. Forming a private limited company does incur some costs and additional paperwork. But a company provides some protection against personal liability and can offer tax planning opportunities at higher income levels.
  • LLPs tend to be more expensive to set up, and have the same sort of paperwork requirements as private limited companies. LLPs are usually used by businesses that are legally required to operate as partnerships (such as accountants and solicitors) or for more complex tax planning strategies.

You should take advice on the right choice for your particular circumstances and business plans.

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