The most simple of legal business entities, being a sole trader means less paperwork and less hassle, with the advantage of providing you with more time to invest in the work that makes you money. As a sole trader, your only responsibilities regarding tax are to register with HMRC within three months of starting to trade and to complete a tax return each year.

As a sole trader, you pay your tax at the end of each year, unlike working as an employee where you pay tax each time you receive payment from your employer. There is also some leverage given by the tax man, as you are given from 6th April to 31st January to make your payment. This is beneficial for those who plan in advance, but can cause a bit of a problem for those who leave everything to the last minute, if there is a cash flow problem.

Partnerships are a great way to combine the skills and assets of multiple people from different backgrounds to enable higher chances of success for a business. An example of this would be someone who has a good background in marketing and business management working with someone who has good technical expertise—allowing them to create a superior product that has the backing of a well-executed marketing strategy and business structure, of which the business wouldn't have succeeded without the contribution of both parties. Good examples of partnership successes have included Steve Jobs (the business brains) and Steve Wozniak (the technical brains) who founded Apple, while Sergey Brin and Larry Page co-founded Google.

Although there are many advantages to setting up a business through a partnership, there are also several major disadvantages:

To avoid such problems, planning and precautions should be put into place that protect the interests of all involved:

Unlike setting up as a sole trader or partnership, trading as a limited company requires much more effort to set up and trade—as all accounts need to be recorded in a specific format and submitted to Companies House for their approval. In short, setting up as a limited company results in much more paperwork which results in more distractions from your core business activities and higher admin/accountancy fees.

There are, however, several advantages to setting up limited company: