| Structure | Liability | Filing | Tax |
|---|---|---|---|
| Sole trader | Unlimited personal liability | Self assessment only | Income tax and Class 4 National Insurance on profits |
| Partnership | Unlimited, and normally joint and several | Partnership return plus each partner's return | Each partner taxed on their share |
| Limited liability partnership | Limited to capital contributed | Accounts filed at Companies House | Partners taxed individually |
| Private limited company | Limited to unpaid share capital | Accounts and confirmation statement filed publicly | Corporation tax on profits, dividends taxed on shareholders |
| Not for profit or charity | Depends on the legal form chosen | Charity Commission and regulator reporting | Various reliefs and exemptions |
The heart of the difference is separate legal personality. A company exists in law separately from its owners, so it can own assets, sue and be sued, and its shareholders risk only what they put in. A sole trader has no such shield: business debts are personal debts, and the family home can be at risk. That single fact drives most of the advice you would give.
The cost of the shield is transparency and administration. Companies file accounts that anyone can read, keep statutory registers, and follow rules on directors' duties and distributions. A written task usually asks you to weigh limited liability and credibility against public disclosure and administrative burden, then conclude for the specific business described.
Directors' duties, in plain terms
Directors must act within their powers, promote the success of the company, exercise independent judgement, exercise reasonable care and skill, avoid conflicts of interest, refuse benefits from third parties and declare any interest in a transaction. Poor governance is not just an ethical failure. It shows up as unchallenged dominant individuals, weak internal control, related party transactions nobody questioned, and finance staff who were told not to ask.
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