How can I structure my business to best benefit me financially?

For anyone striking out as an entrepreneur for the first time, the stakes are often high. Owning and managing a small/medium sized business means that your own personal financial affairs are likely to be tied up in those of the business.

It’s crucial that you always consider how your business is affecting your financial situation

How can I structure the business to best benefit me financially?

When deciding how to structure your business, you need to decide how you want it to fit in with your financial situation.

You need to consider whether you want to form an unincorporated business or a limited one – each option suits different personal financial plans.

If you want your business to be flexible, and to have the freedom to take money out of the business directly, you should consider structuring it as an unincorporated business (as a sole trader, partnership, limited liability partnership etc).

Profits are taxed as income. If you simply want the business to generate a personal income and a pension, being unincorporated is the simplest and most advantageous option.

Partnerships are flexible. Sharing profits among family members/employees is easy – unlike limited companies.

Limited liability partnerships limit your liability (it’s all in the name). They tend to be taxed as unincorporated businesses, despite having similar legal requirements to a limited company.

If you’d rather funnel profits back into the business and add capital value, you should consider structuring it as a limited company (a corporation).

You can pay yourself a salary and dividends.

Shareholders pay less total taxon dividends than they would on an equal amount as wages. Though they are paid from after-tax profits, the amount is taxed less than wages would be.

Corporation tax on profits is lower than the relative income tax liabilities would be. However, you will have to pay the cost of filing and audits at Companies House – and make your business info private.