The Different Types of Businesses

Businesses can broadly be divided into incorporated and unincorporated structures. Each carries different legal implications, particularly in relation to liability, taxation and legal personality.

To make these differences easier to understand and revise, I have set out the main types of business structures into the table below. This is followed by a key explaining the key terms in the table.

Business Type	Incorporated	Separate Legal Personality	Liability	Taxation	Key features	Typical Uses
Sole Trader	No	No	Unlimited	Income tax as self-employed	Owned and run by one person. Business ends on death or retirement.	Small businesses and low risk ventures
General Partnership	No	No	Unlimited and joint liability for partners	Income tax, partners are taxed individually.	Default rules apply unless an agreement states otherwise. Governed by the Partnership Act 1890.	Small businesses.
Limited Partnership	No	No	Limited partners have their liability limited to their investment. General partners have unlimited liability.	Income tax, partners are taxed individually.	Limited partners cannot  manage the business. Governed by Limited Partnerships Act 1907	Investment structures.
Private Company Limited by Shares	Yes	Yes	Limited to the amount unpaid on shares.	Corporation tax	Governed by Companies Act 2006. The directors manage the business. The shareholders own the business. The shares cannot be offered to the public.	Most common
Public Company Limited by Shares	Yes	Yes	Limited to the amount unpaid on shares.	Corporation tax.	Heavily regulated businesses. Can offer shares to the public.	Large businesses and listed companies.
Limited Liability Partnership	Yes	Yes	Limited for members.	Income tax. Members are taxed as self-employed.	Governed by the LLP Act 2000. Flexible.	Professional services.

Key terms explained:

Incorporated – a business that has been legally formed by registration and exists as a separate legal entity from its owners.

Unincorporated – a business that has not been registered as a separate legal entity. The business and its owners are legally the same, meaning the owners are personally responsible for its debts.

Separate legal personality – this means a business has its own legal identity, separate from its owners. This means the business itself can own property and enter into contracts.

Limited liability – a protection that limits an owner’s financial responsibility to a fixed amount. This means personal assets are generally protected if the business fails.

Unlimited liability – owners are personally responsible for all business debts meaning creditors can claim against the owners’ personal assets.