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How to Legally Start Your Own Business

Ready to start your own business? Here's everything you need to know and all the documents you'll need to legally launch your own company and hit the ground running.

Essential documents for starting a business

Find all of the documents you need when starting a business.

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Step 1

Business Plan

A Business Plan outlines a company's challenges and opportunities, as well as its marketing, financial, and management plans. It is commonly used to p...

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Step 2

Partnership Agreement

A Partnership Agreement establishes the rights and responsibilities of general partners, as well as the rules in a for-profit partnership.

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Step 3

Purchase of Business Agreement

A Purchase of Business Agreement is a document used to transact the sale of a business between two parties.

Last updated May 10, 2023

Starting a business is no easy task. There is no one-size-fits-all approach. That being said, it’s never a bad idea to start with thorough research.

First, you’ll need to understand the various types of legal business structures. Your business’s structure determines how it functions, how it pays taxes, and the legal liability you may carry as the owner. Every business structure has pros and cons, so it's important to consider your options before launching your business.

In this guide, we will cover using a Business Plan, common types of business structures, and some of the various documents you need to form your business.

Planning your business

It’s challenging to develop a long-lasting and profitable business without first planning extensively. That’s because planning and researching can help you determine if there’s a market for your business and whether it’s even worth pursuing.

Conducting research and planning can involve any of the following:

  • Defining a target demographic
  • Investigating a specific industry
  • Analysing trends
  • Consulting experts
  • Looking into potential business names
  • Examining potential competitors
  • Developing strategies
  • Seeking funding opportunities

Once you have done the necessary research to confirm that your business idea has potential and you want to move forward, a Business Plan is the best place to compile your findings and strategies.

If you’ve purchased an existing business, a Business Plan can still be useful to you. It can help you set goals as the new owner and outline your vision for other stakeholders.

Business Plan

A Business Plan outlines a business's goals and strategies. Although the various governments in the United Kingdom do not require it, creating a Business Plan is fundamental for new businesses wanting to succeed.

Among many other things, Business Plans:

  • Offer guidance during a business's early stages
  • Show legitimacy to potential partners and investors
  • Summarise key information for potential collaborators

Not all Business Plans look the same, but they usually include some of the following information:

  • Business name and address
  • Goals and objectives
  • Timelines
  • Business structure
  • Ownership details
  • Management structure
  • Business assets
  • Description of primary product/service
  • Proprietary rights
  • Target market
  • Pricing
  • Advertising strategy
  • Competitor descriptions
  • SWOT analysis
  • Operational details
  • Any staffing requirements
  • Capital requirements and financial obligations
  • Financial statement
  • Effective date 

Types of business structures

Once you have created a Business Plan, you must complete the necessary documents to form your company and register with the appropriate office. The documents you need will depend on the type of business structure you select.

Understanding the different types of businesses is extremely important because they all impact your personal liability and tax obligations uniquely.

Sole proprietorship

A sole proprietorship is a business enterprise where a self-employed person owns their business without establishing it as a partnership or limited company. This person is called a sole trader or sole proprietor.

Sole proprietorships are the simplest form of business structure. As a sole trader, you:

  • Keep profits from your business
  • Pay taxes on your business’s profits
  • Are personally liable for any business losses
  • Can work alone or employ others

Being personally liable for business losses means your personal assets can be seized if your business is sued or has unpaid debt.

Not all self-employed people are sole traders. If you’re self-employed but are in a business partnership or run a limited company, you’re not a sole trader. Some self-employed business owners register as limited companies, so even though they work for themselves, their business is not a sole proprietorship.

If you earned more than £1,000 from self-employment in one year, you must set up as a sole trader. Also, you may need to set yourself up as a sole trader if you want to prove you’re self-employed.

Setting yourself up as a sole trader

To set up as a sole trader in England, Wales, Scotland, or Northern Ireland, you must inform Her Majesty's Revenue and Customs (HMRC) that you pay tax through Self Assessment.

When filing your personal tax return every year, you’ll need to consider your business income.


A partnership, also known as a general partnership, is a business entity jointly owned by two or more partners who do not form a company or limited partnership. A partner does not have to be an actual person. A partner can be an individual, a company, or another partnership.

Note these key takeaways regarding partnerships:

  • Partnerships are the simplest way for multiple parties to run a business together
  • Partners share the business’s profits and pay tax on their individual cuts
  • Partners share the risks, costs, and responsibilities of the business  
  • Partners are liable for the other’s negligence

Like with sole proprietorships, partners are personally liable for the losses or debts that the business experiences.

When setting up a partnership, partners should always use a Partnership Agreement to define the responsibilities of each partner and outline the distribution of income and losses. The agreement should outline a profit-sharing ratio that reflects each partner’s initial contributions.

Setting up a partnership

To set up a business partnership in England, Wales, Scotland, or Northern Ireland, you must register for Self Assessment with HMRC.

Upon registry, choose a nominated partner responsible for managing the partnership’s tax returns and keeping business records.

Limited liability partnership (LLP)

A limited liability partnership (LLP) is a hybrid form of business entity that is neither a general partnership nor a company. Although, like with a company, an LLP is a separate legal entity.

As the name suggests, the liability of LLP owners is limited. Unlike a company, an LLP doesn’t have shareholders or directors.

Much like a partnership, the relationship between the LLP owners is governed by a Partnership Agreement. In addition, LLPs are taxed like a general partnership, meaning LLP members are taxed individually on their share of the profits.

This business entity is governed by the Limited Liability Partnerships Act 2000.

Registering your limited liability partnership

You can register your limited liability partnership (LLP) in the United Kingdom yourself through one of the following options:

Once your LLP’s been registered, you’ll be sent a certificate of incorporation.

Limited company

A limited company is a corporation that is legally separate and distinct from its owners.  This means the company is responsible for everything it does and its finances are separate from its owners’ personal assets.

To create a limited company in the United Kingdom, businesses must incorporate at Companies House.

Limited companies are owned by shareholders and run by directors. Shareholders are only personally liable for company debts beyond the nominal value of their shares if:

  • They provide personal guarantees during contractual agreements, such as loans, on behalf of the company
  • They are also directors of the company and take actions that constitute an offence

Limited companies have to follow the Companies Act 2006 and are governed by their own Articles of Association, which outline how the shareholders and directors of a limited company must operate.

A fundamental feature of limited companies is the limited liability it offers shareholders which can either be limited by shares or limited by guarantee.

Limited companies can be private or public. A public company’s shares are available to the general public and traded on a stock exchange, while a private company's shares are not. A private company cannot offer its shares for sale to the public.

When a business wants to incorporate as a limited company in the United Kingdom, there are varying company structures to choose from:

  • Private company limited by shares (LTD)
  • Public limited company
  • Private company limited by guarantee

Private company limited by shares (LTD)

A private company limited by shares (LTD) is one of the most common types of companies. If established as a private company limited by shares, a company’s shareholders are only responsible for its financial liabilities to the extent they invested in the company.

In contrast to a public company, a private company cannot be owned by members of the general public. Instead, it is usually owned by a relatively small number of shareholders, and the sale of company shares is handled privately.

Public limited company (PLC)

A public limited company (PLC) is a corporation whose ownership is open to the public. This means that anyone can buy company shares and shares may be sold on the stock exchange.

Under a PLC, shareholders are only responsible for the company’s financial liabilities to the extent of their investment.

Before a PLC can become established as such, its allotted shares must have a total value of at least £50,000.

Company limited by guarantee

A “company limited by guarantee” differs from those limited by shares. The members are not responsible for a fixed sum based on their investment, as this company status is reserved for companies that don’t have shareholders, such as non-profit organisations. Generally, this type of company invests its profits back into the business.

Instead of shareholders, these companies typically have a group of members who act as guarantors. Their liability is limited to the amount they agree to contribute to the company’s debts if it is wound up.

However, like those limited by shares, companies limited by guarantee are still legally separate from the people who run them.

Six steps to forming a limited company

To incorporate a limited company, follow these steps.

Step 1. Pick a proposed name

Settle on a proposed name and check to see if it is available to make sure another company hasn’t already selected it. In addition, check the UK Intellectual Property Office trade marks register to make sure your proposed name doesn’t infringe on an existing trade mark.

Once you know a name is available, be sure that it abides by the United Kingdom’s various laws and naming regulations.

Step 2. Pick directors

According to GOV.UK, private limited companies must have at least one director, but public ones must have at least two. It’s up to the shareholders or guarantors to appoint the directors who will run the company on their behalf.

Step 3. Decide who the shareholders or guarantors are

A limited company needs at least one shareholder or guarantor, who can be a director.

Step 4. Identify the individuals with significant company control

Companies House demands that you identify the person who owns or controls your company, also known as the person with significant control (PSC). They’re sometimes called beneficial owners.

A company can have one or more PSCs. You must record their details on your company’s PSC register, and you’ll need to include this information while registering to incorporate.

Step 5. Prepare Articles of Association

Articles of Association are a set of rules for the shareholders and directors of a limited company to follow. These articles ensure transparency and fairness for everyone with a stake in a company.

Without the Articles of Association, directors and shareholders could face ongoing disagreements about operating a company. With a clear set of rules, directors and shareholders can manage the company consistently and fairly.

Step 6. Register your company with Companies House

When you register your company with Companies House, you will be registered for Corporation Tax at the same time.

Afterwards, you’ll get a certificate of incorporation. This confirms the company legally exists and shows the company number and date of formation.