When you start a business, you have to choose a legal structure for your business. The legal structure determines:
- The requirements for setting up the business, including the financial requirements
- The amount of taxes that you will pay.
- The liability: are you personally responsible for all business transactions, including financial transactions?
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Business structures may differ between countries, so always check the information for your country. Some common business structures are:
Sole Proprietorship or Sole Trader
A sole proprietorship is the most basic type of business to establish. You alone own the company and are responsible for its assets and liabilities and debts. If you start working for yourself and are 'self employed', you will be classed as a sole trader.
If you start working for yourself, 'syou’re classed as a sole trader.
This means the company:
- is legally separate from the people who run it;
- has separate finances from your personal ones;
- can keep any profits it makes after paying tax.
To set up a limited company, you will need at least one director and one shareholder.
A partnership is the simplest way for 2 or more people to run a business together. The partners share responsibility for the business’s debts. They also have accounting responsibilities. Partners share the business’s profits, and each partner pays tax on their share.