Types of business | Prospects.ac.uk

There’s a lot to think about before becoming self-employed, but one of the main things to consider is what type of business you’ll be running. there are a number of business structures to choose from so you will need to do your research

Self-employment is most common in the accounting, banking and finance, creative arts and design, health care, information technology, law, leisure, sports and tourism, and media and internet sectors.

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It is important to understand that not all businesses operate in the same way and that there are three main types of business that those seeking self-employment may seek to establish: sole trader, partnership and limited company, but be careful, your selection they have tax implications and will affect your legal responsibilities.

Each type of business differs in terms of the paperwork you must complete, the tax you must pay, how profits are distributed, and your personal responsibilities if the business has a loss.

sole proprietor

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This type of business is owned and managed by a single person. there is no legal distinction between the owner and the business, which means that all debts and after-tax profits are yours personally; this is called “unlimited liability.” specialized service providers, such as plumbers, hairdressers, and electricians, are often independent traders.

Sole trader businesses are easy to set up and break down, are subject to relatively little regulation, give the owner the freedom to make decisions, and generally have relatively low operating costs. The owner is responsible for keeping the daily financial records, but hands over the responsibility for the year-end accounts to a professional accountant.

The downside is that sole proprietorships can be difficult to keep afloat, and owners typically work long hours and take few vacations. There’s also no one to share the responsibility with, which means any business weaknesses you have can be exposed.

association

Like sole traders in that they are subject to unlimited liability, partnerships differ in that they involve two or more people who combine their expertise to own and run the business together. professional service providers such as dentists, doctors, lawyers, and accountants often fall into this category.

A partnership deed usually states how much capital each individual has contributed, how profits and losses will be shared, and which partner does the accounting. each partner pays taxes and national insurance on his individual benefit.

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Associations often offer the advantages of shared responsibility, less time pressure for each individual, and a higher level of financial influence and expertise. however, making decisions can be difficult. What’s more, one partner may feel that another is not putting in enough effort or is making a disproportionate profit.

limited company

There are two types of limited companies: private limited companies and public limited companies. the former are usually small companies that are not listed on the stock market, while the latter are usually well-known companies that are.

Unlike sole traders and partnerships, these companies are registered at the registered office and have their own legal rights and obligations. ownership is divided into equal parts called shares. anyone who owns one or more shares is a shareholder.

Limited partnerships offer limited liability, which means that the business, rather than its owners or managers, enters into contracts, employs people, acquires debts and profits, and is liable to prosecution if criminal offenses are committed. The owner of a limited company is not necessarily involved in the day-to-day running of the business, unless he is elected to the board of directors.

other business structures

There are several other types of businesses, some of which must still be registered as one of the three business structures described above.

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  • Franchise: This is an established business, such as McDonald’s, KFC, and Hertz, that is owned by a franchisor but managed by a franchisee. The franchisor sells the right to use its business model to the franchisee, who pays an ongoing fee. workload and start-up costs are typically lower, business financing is more easily acquired, and relationships with suppliers, distributors, and marketers already exist. however, ongoing high fees restrict franchisees’ long-term profits, cheaper operating methods cannot be used unless authorized by the franchisor, and any negative action by a franchisee can harm the business.
  • freelancer/consultant: These individuals have the skills, knowledge, and experience in a particular field to charge organizations for their services. The most common jobs for freelancing or consulting include performing arts roles such as an actor, dancer, and musician. jobs in the media, such as broadcast journalist, magazine journalist, writer and photographer. Other popular freelance roles include acupuncturist, lawyer, fine artist, osteopath, graphic designer, translator, interior designer, textile designer, and web designer. for more information, see freelancing.
  • Social Enterprise: This type of enterprise operates to benefit society or the environment and must transparently reinvest profits to achieve its goals. There are around 471,000 social enterprises in the UK, according to a recent government report, employing nearly 1.44 million people and contributing £60 billion to the UK economy. There are several types of social enterprises, most notably cooperatives, credit unions, development trusts, employee-owned businesses, and housing associations. Two well-known social enterprises are the Big Issue Foundation and the Eden Project.
  • charity: While the commercial arm of a charity can be classified as a social enterprise, the charity itself cannot. this is because it differs in that income is earned through grants and donations, rather than trade. Charities pay reduced business rates and receive tax breaks, and are typically run by trustees who do not profit from the charity. Find out more about the charity sector and volunteer work.
  • more information

    • Find out if self-employment is right for you.
    • for information and tips on getting started, see how to start a business.
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