There are basically 3 possible structures:
1. Sole trader.
2. Partnerships including LLPs.
The majority of people start off as a sole trader. There is less paperwork, legal costs are lower and it is a much easier regime to work within. However there are usually two main drawbacks
1. The tax regime can be more punitive for sole traders compared to that which applies to a limited company. There are fewer opportunities to delay the taxing of profits. In a nutshell a limited company allows you to build up profits within a company which have been taxed at a lower rate. When you come to sell the company the gains can, if planned well, also be taxed at a lower or non existant rate.
2.The word “limited” means that the your liability if things go wrong is restricted. This of course won’t apply if you have given a personal guarantee but it means that there is a way to place your personal assets outside the reach of any business creditors.
A limited company will bring additional obligations.Each year you have a set of accounts to file and an annual return to make. You also have a second tax return, not just your own but one for the company as well. These and many more points can add maybe a £1000 or more to the costs of your business.
A partnership is like a sole trader but with a partner. You share liabilities and are equally responsible for the business debts.