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There are many business structures that you can trade through, the format of your business isn't set in stone and can be changed if deemed fit.

A sole trader could take on a partner and evolve into a partnership or you could turn a partnership into a limited company or Limited Liability Partnership.

Sole Trader - The simplest form of business to start where you are sole owner with full responsibilities over your business. You are liable for your own income tax and National Insurance based on the profits you make.

Partnership - A Partnership is two or more people who work in conjunction with a view to make a profit. Partners are usually joint owners and liable in equal amounts when partnership debts arise. This does not apply to personal tax bills as the individual is still liable to his/her own taxes based on the Partnership profits.

It may be advisable to have partnership agreements in place to document the arrangements within the business including how profits are to be shared and how partners will join/leave the partnership. A husband and wife could have a written partnership agreement to show both parties are active and have rights to the profits within the business.

Limited Company - A limited company is an organisation that you can set up to run your business - it's responsible in its own right for everything it does and its finances are separate to your personal finances. Any profit it makes is owned by the company, after it pays Corporation Tax. The company can then share its profits.

Every limited company has 'members' - the people or organisations who own shares in the company. Directors are responsible for running the company. Directors often own shares, but they don't have to. The business is owned by the limited company, not its directors, the company must have at least one shareholder who will have right to dividends if the company makes profits. If you are the only shareholder, you will have sole ownership of the company, and are likely to also be the director who runs it. The company pays corporation tax on its profits which accrue during the year and the company is governed by company law.

Limited Liability Partnership (LLP) - A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. It therefore exhibits elements of partnerships and corporations. In an LLP, one partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from the traditional unlimited partnership under the Partnership Act 1890 (for the UK), in which each partner has joint and several liabilities. In an LLP, some partners have a form of limited liability similar to that of the shareholders of a corporation.

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