Is it still appropriate to be an unincorporated business or is now the time to set up a company?

Melanie Richardson


In the ever evolving landscape of business ownership, the decision between operating as a sole trader or a partnership or incorporating as a limited company is a critical consideration for business owners. While both structures offer distinct advantages and disadvantages, working out which option is the most suitable, requires careful assessment of various factors.

Unincorporated business such as sole traders and partnerships, have long been favoured by small businesses because of their simplicity and flexibility. Operating as a sole trader or a partnership involves a smaller administrative burden, with fewer legal requirements and lower setup costs compared to a limited company. Moreover, sole traders and partnerships maintain full control over their businesses and have the flexibility to make decisions independently.

However, the primary downside of operating as a sole trader or a partnership lies in the lack of legal distinction between the business and its owner(s). As such, individuals behind unincorporated businesses may become personally liable for any debts or liabilities incurred by the business. This can pose significant risks, particularly in industries prone to litigation or facing financial volatility.

In contrast, incorporating as a limited company offers several advantages in terms of liability protection and tax efficiency.  Limited companies are separate legal entities, distinct from their owners, which means that shareholders' liability is limited to the amount invested in the company. This provides greater asset protection and reduces personal financial risk.

Incorporating can also enhance credibility and professionalism, instilling confidence in customers, suppliers, and investors.

However, the process of incorporating entails additional administrative complexities and compliance requirements. Limited companies are subject to a stricter regulatory regime, annual filings, statutory reporting and corporate governance obligations.  Incorporating typically involves higher setup costs and ongoing administrative expenses compared to operating as a sole trader or a partnership.

Ultimately, the decision to incorporate should be based on a thorough assessment of your business objectives, financial circumstances and risk tolerance. While incorporating offers benefits in terms of liability protection and sometimes tax efficiency, it may not be suitable for every business. Unincorporated businesses remain viable options for business owners looking for simplicity and flexibility.

If you have any questions or queries regarding incorporation, please get in touch with your Swindells partner who can provide invaluable insights and guidance to help you make an informed decision that aligns with your long term goals and aspirations.

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