Legal structure of your business

PACEY
$
Careers in Childcare
$
Setting Up A Nursery
$
Legal Structure

There are several legal structures for businesses. Each has different tax and legal implications. These include:

Company Structure Type	Description	Registration Requirements	Pros	Cons
Sole trader	simplest structure – considered ‘self-employed.	Register with HMRC for self-assessment	Low cost, easy to set up, full control retained	Full liability for debt
Partnership	2 or more individuals involved (does not need to be a person – a limited company counts as a ‘legal person’ and can be a partner. Partnership document defines liabilities, ownership and profit splits	Partnership name is registered with HMRC and nominated partner manages the partnerships tax returns and record keeping	Shared control and distribution of incomes/losses, generally easier to form, manage and run, more potential to raise finance	Full liability affecting all partners Partnership disagreements
Limited Liability Partnership (LLP)	Legal structure where a number of partners not limited	Must have 2 designated members when registering with HMRC who are responsible for managing the tax returns and record keeping	Flexibility – can be incorporated in members’ agreement. Has advantages of limited company and partnership combines	Partners must disclose income LLP must trade within one year of registration or be struck off
Limited company	A private company that is incorporated and limited by shares. personal assets are protected in the event of insolvency, although they may lose any money invested in the company Set up a limited company: step by step - GOV.UK (www.gov.uk)	Must pay a registration fee and be incorporated with Companies House. Must have at least one director and one guarantor (although can be the same individual. Must be registered with HMRC.	Less personal financial exposure Limited liability protection	Involves more significant set-up costs Annual accounts and financial reports must be placed in the public domain
Community Interest Company (CIC)	Special type of limited company which exists to benefit the community rather than share holders	Will need to register CIC with Companies House and follow the accounting requirements of a limited company	Similar to that of a limited company but with a clear social purpose Greater flexibility than charities including borrowing and fund raising Continues to exist when there is a change in ownership or management	Regulated by CIC regulator, so extra layer of compliance beyond standard companies Profits must be used for the benefit of the community Less recognition and trust than a charity Liable for corporation Tax
Charitable Incorporated Organisation (CIO) - Charity		Must register with Charity Commission if it is a charitable incorporated organisation or has an annual income of more that £5,000. Must also register with HMRC for VAT is their VAT-able sales are over the VAT threshold	Has a legal personality (and can enter into contracts, sue and be sued, & hold property in its own name) Members have limited liability May be able eligible for VAT relief from suppliers Charities may not have to pay income/corporation tax May be eligible for reduced business rates May be able to reclaim gift aid on donations from private individuals Potential to attract grant funding	Must have solely charitable aims so may need to cease other activities that do not relate to this There may be restrictions of certain types of charitable trading May be registered with 2 regulators – Charity Commission and Companies House (so have two lots of reporting) Loss of control and increased governance as governed by board of trustees