What are the different types of entity for running/setting up a business?

There a many ways in which a business can be set-up or run, for example:


A sole trader is a type of business entity which is owned and run by one individual and where there is no legal distinction between the owner and the business. All profits and all losses accrue to the owner (subject to taxation specific to the business). All assets of the business are owned by the proprietor and all debts of the business are the individuals. This means that the owner has no lesser liability than if they were acting as individual instead of a business.


A Partnership relationship subsists between two or more persons carrying on business in common with a view to profit. Partnerships are governed in the UK by the Partnership Act 1890. A partnership is not a separate legal entity. Partners generally have unlimited liability.

A partnership under the Partnership Act 1890 differs from a limited liability partnership established under the Limited Liability Partnerships Act 2000.

PRIVATE LIMITED COMPANY (often known as a "Limited Company")

A Private Limited Company is a company that is owned by shareholders, and run by directors.

A Private Limited Company can be limited by shares (members' liability is limited to the amount unpaid on shares they hold) or limited by guarantee (members' liability is limited to the amount they have agreed to contribute to the company's assets if it is wound up).

It is not a public company so it is not allowed to offer its shares to the general public.


Introduced in April 2001 by the Limited Liability Partnerships Act 2000, an LLP is a hybrid form of business entity: it is neither a partnership nor a company. Like a company, an LLP is a corporate body and therefore a separate legal entity and an LLP member's liability is limited.

However, like a partnership the relationship between the LLP members is governed by private agreement. An LLP does not have shareholders or director and is taxed like a partnership.


A company with a separate legal existence from its shareholders who enjoy limited liability. A public limited company's shares are listed and can be bought and sold on the stock market by members of the public. A PLC must have an allotted share capital with a nominal value of at least £50,000.

For further information on setting up a business, speak to our Business Law Team.