Sole trader: one owner keeps everything and carries everything

1. A sole trader is a business owned and run by one person who is not legally separate from the firm, and both sides of the structure follow from that single ownership.
   1. All the profit and all the control: the owner keeps every pound the business makes and can cut a price, drop a product or open on a Sunday the same afternoon, without asking a partner or a board.
   2. Unlimited liability: business debts can be settled out of the owner's personal savings, car or home, as guide 1.4.1a sets out.
   3. Every skill and every hour sits with one person: the owner sells, prices, orders stock and files the tax return, and with nobody to cover illness or a holiday the takings stop when the owner does.

Partnership: two or more owners share the money, the work and the risk

1. A partnership is a business owned by two or more people who share its capital, its decisions and its profits, usually on terms fixed in a written partnership agreement.
   1. Shared workload and different skills: one partner can keep the books and chase invoices while another sells, so the firm covers jobs a sole trader would have to learn from scratch or pay for.
   2. More capital and shared risk: three partners putting in £8,000 each start with £24,000 rather than one person's savings, a loss falls across them all rather than on one owner, and the business keeps running when one partner is ill.
   3. The profit is split: sharing has a price, and the first part of it is that a profit of £60,000 divided equally between three partners leaves each of them with £20,000, less than a sole trader earning £30,000 alone.
   4. Unlimited liability, and each partner is bound by the others: in an ordinary partnership the partners' personal assets are exposed, and a contract one partner signs binds the rest, so a deal you never agreed to can reach your savings.
   5. Slower decisions and the risk of disagreement: no partner can act alone on a big decision, so a price cut waits for agreement, and partners who fall out over strategy or over how much each one works can stall the business or break it up.

Private limited company: shares held privately and owners protected

1. A private limited company (Ltd) is a business whose shares are held privately by the founders, their family or investors they have invited in, and which the law treats as a body separate from its owners.
   1. Limited liability: a shareholder can lose the money they put in but not their personal assets, because the company owes the debts rather than the people behind it, as guide 1.4.1a explains in full.
   2. Share finance and a more established look: it can raise money by selling new shares, which a sole trader or partnership cannot do at all, and because suppliers and larger customers can look it up at Companies House a first trade credit account or a bigger contract is easier to win.
   3. The profit is shared out: that protection is paid for, starting with the earnings themselves, because profit not kept in the business goes out as dividends to every shareholder instead of belonging to one owner.
   4. More paperwork and less privacy: the company must be registered and must file accounts at Companies House every year, which usually means paying an accountant and letting a competitor read what the business earns.
   5. Control is diluted: every new shareholder brought in for their money also brings a vote, so a founder who has sold most of the shares can be outvoted on a decision in their own business.

The three types side by side

The features that separate the three structures are gathered here so they can be compared row by row.

1. The row that changes most for an owner is liability, because it alone decides whether a business that fails costs the money put in or the home the owner lives in.
2. The advantages also run in opposite directions, since the structure that is quickest and cheapest to set up is the one that leaves the owner's own possessions exposed, and no column is stronger in every row, which is why the choice has to be argued for a particular business rather than settled in general.

Choosing between them: what the decision actually turns on

1. No structure is best in general, so judge a particular start-up against three questions.
   1. How much the owner has to lose: a dog-walking round with £300 of kit risks little, while a café with a £45,000 fit-out and a five-year lease could leave an owner personally owing more than they earn in a decade, which is when limited liability earns its cost.
   2. How much money the idea needs up front: an idea that must buy equipment before it earns anything needs outside money, and an investor who will not lend will still buy shares, which only a company can sell.
   3. How much control and administration the owner wants: keeping every decision and skipping annual filing points to a sole trader, while accepting other shareholders' votes and a yearly set of published accounts is the price of protection and share finance.
2. So a low-risk service built on one person's skill is best left as a sole trader, a business that needs a second skill set and a second cheque book fits a partnership, and any start-up borrowing heavily or signing contracts larger than the owner's savings should be a private limited company from the start, because the extra cost is small next to the debts it could face.