Other ways to set up your business
Becoming a sole trader or setting up a limited company or partnership are the most common ways to run a business. But they’re not your only options.
Here, we take a look at 2 other ways to set up your business. Each one works in its own way and comes with different rules for tax, which we’ll explain as we go through.
Social enterprises: putting community benefit first
A social enterprise is a business that exists to help people or communities – not just to make money for its owners. Any profit it makes usually goes towards whatever cause it was set up for, rather than to the business owner or any shareholders.
You can run a social enterprise in different ways. Some set up as charities and others become Community Interest Companies. You can even run one as a sole trader or partnership if that works best for you.
A Community Interest Company is a special type of limited company that’s been designed for social enterprises. To set one up, you’ll need a business plan that includes what your business will do for the community. You also need something called an ‘asset lock’. This is a legal promise that your company’s assets (that’s all your funds and profits) will only be used for its social goals.
Community Interest Companies must be approved by the Community Interest Company Regulator. You can register online with Companies House and it costs a small fee. Once you’re set up, you’ll follow similar tax rules to other limited companies.
You can find out more about Community Interest Companies on GOV.UK.
Key thing to remember:
Social enterprises are businesses that have a community purpose. There are many different ways you can set one up – and this affects what, if any, tax it will pay. Either way, all the business profits usually go towards the cause it supports.
Unincorporated associations: for non-profit groups
An unincorporated association is a group of people who come together for a shared purpose that isn’t focused on making a profit. Sports clubs, hobby groups, and local community organisations often use this type of business structure.
Setting one up is free and you don’t need to register anywhere, so it’s fairly simple. You just need an agreement between all the members of the group about how the unincorporated association will work.
An important thing to know is that all members of the unincorporated association are personally responsible for any debts should the business get into money trouble. The business isn’t separate from the members, and it can’t own property or agree to any contracts in its own name.
Helpful tip:
If your unincorporated association starts to make a profit – maybe from selling things or even from investments – you’ll need to pay Corporation Tax and fill in a Company Tax Return.
Company Tax Returns for unincorporated associations work the same way as they do for limited companies. You can find out more on our page about Company Tax Returns.
Key thing to remember:
Unincorporated associations are used when a group of people come together for a reason other than to make a profit. All the members are personally responsible for the running and finances of the organisation.
Supporting you whatever choice you make
Each business structure has its own benefits and drawbacks. What works for one person might not work for another. It’s important to think about what you want to achieve and how you want to achieve it – that can help point you in the right direction so you can confidently focus on running your business.