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When starting a business you need to decide on the type of ownership you want. There are seven different types of ownership, so it’s important to consider the advantages, disadvantages, and how each option aligns with your business before making a decision.

Read more: Four business structure types and how to choose the best one for you

Key takeaways

• When considering business ownership, think about whether you want to run your business on your own or with others

• Certain types of ownership give you more financial protection than others

• If you’re not sure which type of business ownership is best for you, seek financial advice

Seven types of business ownership

Business ownership refers to who legally owns and has financial control of a business. This might be one person on their own, or could be a group of people.Ìý

Below, we’ve outlined the seven forms of business ownership and their pros and cons:

1. Sole proprietorship

This is the simplest form of business ownership. It means one person owns the business and has full control of how it’s run. That person can still hire staff, but the owner (sole trader) has full responsibility for the business.Ìý

If you set up as a sole trader, your business and personal finances are one and the same. This means you are personally responsible for any business debts and legal actions taken against your business. You must also file a self-assessment tax return and will be responsible for paying income tax on your earnings.

Pros

• Easy to set up, with minimal paperwork

• You have full control of the company and can make all business decisions

• You keep all the profits from the business, after tax

Cons

• You are responsible for all business debtsÌý

• You are personally liable if someone sues your business

• It can be harder to secure finance for your business

2. Partnership

With a general partnership, you and your business partners own the business between you. You must all agree to invest in the business, and you all take on personal responsibility for repaying business debts.Ìý

Each partner can focus on different parts of the business, but one of you must agree to become the nominated partner. This person is responsible for registering the partnership with HMRC for tax purposes, and for financial record keeping. However, each partner must still register with HMRC as self-employed.Ìý

By default, each partner gets an equal share of the profits and losses, but you may wish to amend this in your partnership agreement, particularly if one partner has invested a smaller or larger sum than others.Ìý

Pros

• You have more owners to help run the business and make business decisions

• Pools talent, with each partner using their own strengths and skills to help the business

• It’s often flexible and easy to set up

Cons

• Partners are jointly responsible for business debts

• Each partner needs to file their own tax returnÌý

• It can lead to disagreement if you have different views

3. Limited liability partnership

A limited liability partnership (LLP) is another way of owning a business with someone else, but it gives you more protection than a general partnership. That’s because each partner has limited liability, depending on how much they invest in the business.Ìý

It’s best to have an agreement in place to specify how you intend to share profits between partners and the responsibilities of each. The agreement must also state what happens if a partner resigns or dies and how you plan to make business decisions.Ìý

An LLP must have two designated members who prepare and send annual accounts and register the business with HMRC (although each partner must also register themselves for self-assessment).Ìý

Pros

• Partners share ownership and decision-makingÌý

• Pools talent and allows for flexible management

• Limits partners’ liability for company debts

Cons

• Each partner must file their own tax return

• It can sometimes be difficult to reach agreements if there are several partners

• It can involve more administrative tasks, including preparing accounts

4. Private limited company

A private limited company is a type of business that’s privately owned by its shareholders (this is simply anyone who owns a stake (or shares) in the company).

If you set up a limited company, at least one director must run and manage it. Directors can also be shareholders. This means you can own and manage a limited company by yourself or with others.Ìý

A limited company operates as a separate legal entity to its shareholders and directors. All business assets and liabilities belong to the company, so shareholders are not wholly responsible for company debts. The number of shares they hold dictates their liability.

However, this also means that unlike a sole trader, who can take cash out of the business as they wish, the business must pay a director or owner in the form of a salary or dividend payment and run a monthly payroll.

Pros

• Limited liability for repaying company debts

• More professional setup, which can make you more attractive to clients and lenders

• Can be more tax efficient, as you pay corporation tax on your business profitsÌý

• Shares cannot be sold to the public, protecting the company from loss of ownership

Cons

• There are lots of legal requirements, including filing annual accounts and returns to Companies House, and paying corporation tax

• It can take a lot longer to set up

• The business must transfer money to you in the form of a salary or dividend paymentÌýÌý

5. Public limited company

A public limited company (PLC) is also a separate legal entity and is again managed and owned by its directors and shareholders. However, the key difference is that a public limited company can offer shares to the public by listing the company on a stock exchange.Ìý

This can help your business raise funds, but it also means that the more shareholders you have, the more diluted your ownership becomes, and you could eventually lose control of the company.ÌýÌý

A public limited company must have at least two directors. It’s often only suitable for companies that have been trading for a long time.Ìý

Pros

• Can help you to raise investment quicklyÌý

• Owners have limited liability

• Can be more tax efficient, as you pay corporation tax on your business profitsÌý

• Listing your business on a stock exchange can raise brand awareness

Cons

• Increased regulation

• You could start to lose control of your business

• Can be vulnerable to takeovers as other businesses can buy shares in your company

• You need at least two directors to run the company

Read more:Ìý

• Sole trader vs limited company

• How to register a businessÌý

6. Non-profit

A non-profit organisation operates for public or social benefits rather than to generate a profit. This means that any income earned won’t go to the owners or members.

Pros

• Your non-profit may not need to pay corporation tax

• As an owner, you’re protected from personal liability

• You may be eligible to receive grants

Cons

• There might be public scrutiny over how you use funds and donations

• You must follow certain rules when setting up a non-profitÌý

• You won’t receive any of the income

7. Co-operative

A co-operative is a business or organisation that’s democratically owned and controlled by its members. Members can be customers, suppliers or employees, and they all have a say in how the business is run. They also share in the profits.Ìý

The organisation might work towards economic, social or cultural goals.

Pros

• Can be easy to set up

• Each member has voting rights

• Limited liability for membersÌý

Cons

• Everyone is equal, no matter how much they have invested

• It can take a long time to make decisions

• Co-ops may have limited capital as they rely on member contributions and retained earnings

Factors to consider when choosing business ownership

When comparing business ownership options and thinking about what best works for you, you need to consider factors such as:

• Startup costs: Startup costs can vary, so you need to think about whether you plan to fund your business with your own money or courtesy of external investment

• The level of responsibility: Would you prefer to run the business by yourself or with the help of others? If you want to run it with others, would you prefer one or two partners, or several owners?

• Personal financial risk: What sort of risks could your business face? Think about whether you’re comfortable having unlimited liability as a sole trader or if you’d prefer limited liability

• Tax implications: Make sure you understand the types of taxes you need to pay, and these will change depending on the business ownership model you choose. You will also need to investigate how to pay them

• Growth plans: Are you looking to keep your business small or expand and potentially list it on a stock exchange one day?

Weighing up these factors can help you decide the correct business ownership structure for you. It may also be worthwhile seeking financial advice before committing.Ìý

Business ownership examples

Below, we’ve outlined some examples of the different types of business ownership:

• Partnerships:

• Private limited companies (Ltd): Innocent Drinks ()

• Public limited companies (PLC):

• Non-profit organisations:

• Co-operatives: (The Co-op)