Options for start-up businesses

Sole trader

A sole trader is a business owned and run by one person. It is the most common UK start-up structure.

Advantages: easy and cheap to set up, full control, owner keeps all profits, simple tax (Self-Assessment).

Disadvantages: unlimited liability — the owner is personally responsible for ALL business debts; raising finance is hard (banks lend cautiously); no business continuity if the owner is ill or dies.

Partnership

A partnership is owned by 2–20 partners who share profit, loss and decision-making, usually under a Deed of Partnership.

Advantages: more capital, shared workload, complementary skills.

Disadvantages: still unlimited liability for general partners; profits are shared; disagreements can damage the business.

Private limited company (Ltd)

A Ltd is a separate legal entity owned by shareholders. Shares are NOT sold to the public.

Advantages: limited liability — shareholders only risk what they invested; easier to raise finance (sell shares privately, banks more willing); business continuity (the Ltd survives owner changes).

Disadvantages: more paperwork (Companies House, audited accounts); profits split as dividends; less privacy (public filings); set-up costs.

Franchising

A franchise is a licence to use an established brand and business model in exchange for a fee and ongoing royalty. The franchisor owns the brand; the franchisee runs a local outlet (e.g. McDonald's, Subway, Costa Express).

Advantages for the franchisee: proven business model, brand recognition, training and support, marketing done centrally — lower failure rate than independent start-ups.

Disadvantages for the franchisee: high upfront fee plus ongoing royalty; restricted in what they can sell or how; reputation depends on other franchisees too.

Implications of unlimited vs limited liability

• Unlimited liability (sole trader, ordinary partnership): owner's personal assets — house, car, savings — can be taken to settle business debts.
• Limited liability (Ltd, LLP): the business is a separate legal "person." Owners lose at most what they invested.

This single distinction often drives the decision between a sole trader and a Ltd as a business grows.