Self-employment : Types of business

Your business will need to operate under a legal structure. Your decision will have implications for tax, national insurance, accounts and record keeping and how management decisions are made.

When choosing the format of your business you may wish to consider:

• your product or service and the risks involved;
• the types of customers you want;
• the investment and funding;
• the number involved in the business.

Sole traders

Most people who start in business do so as sole traders, working on their own, often from home. They alone receive the income and they alone are therefore liable for any losses or debts. Having no colleagues can be liberating, but may equally be isolating with no one to provide motivation or inspiration.

Inspirational inventors like Trevor Bayliss and James Dyson rose to the challenge through painstaking and countless prototypes, expensive annual patent renewal to protect IP and ultimately finding a backer. Find out more at Institute of Patentees and Inventors . 

Partnerships

You could set up in business with one or more colleagues, relatives or friends. This form of business relationship is usually known as a partnership. All may be equal partners or some may have a larger share of the business than others. Your income and liability are proportionate to your share in the business. Partnership agreements set up by a solicitor will prevent misunderstanding if circumstances change.

Limited companies

As a limited company, the business is registered with Companies House . It will be a virtual person in the eyes of the law and have separate finances from the owners. There are more regulations associated with running a business this way, but these are generally offset by tax advantages.

Franchises

Franchises provide a way for individuals to start their own businesses with the backing of an established brand and business process. Well-known examples include Domino’s Pizza, Subway, McDonalds, Thornton’s and Toni&Guy.

By making an initial payment, which secures equipment, raw materials, training and a well-known commercial name, you run a branch of the business ideally making a profit. You can get information and advice from the British Franchise Association (BFA) .

Cooperatives

A cooperative is a group of like-minded people with similar aims and business interests. Often community based, co-ops are owned and run democratically and everyone has a say. Profits are returned to members and typically involve employee share schemes. Co-ops are frequently creative, practical or founded on ethical values.

Buying a business

Taking on an existing business may cut out some of the legwork involved in starting up on your own. But try to find an established firm with a solid customer base and a motivated workforce, rather than one with liabilities or a poor reputation. You can find a business to buy through the local press, estate agents, trade associations and websites dedicated to this sort of provision.

Medical and legal practitioners

The medical and legal professions have specific structures of employment. If you enter one of these careers, you will need to consider what sort of practice suits you best. For example, barristers work from chambers, medical general practitioners (GPs) and dentists may set up their own practice or go into partnership. Opticians may opt to take up a franchise. These are all alternatives to being salaried employees.

Freelancing

Freelancers offer a skill or service to other businesses which employ them as needed for particular projects or for set lengths of time. They may be given office space or work from home, delivering work to (often tight) deadlines.

Some freelancers actively market themselves. Others obtain work through agencies or by a direct approach from employers. Professional Contractors Group (PCG) promotes freelancing and provides advice and support.

Social enterprises and charities

Social enterprise is set to increase in importance and presumably investment as the coalition government’s Big Society promotes businesses with social objectives generating surpluses (rather than profit) to benefit local communities as well as regional regeneration and national social policy. Well-known examples include The Big Issue , the Fifteen  restaurant concept and the Eden Project .

Business Link  has information for aspiring social entrepreneurs. The Social Enterprise Coalition  represents social enterprises nationally.