Choosing the Right Business Structure

If you’re setting up your own business or getting started as a freelancer, your organisation’s legal structure will be one of the first decisions you have to make. Below, we summarise the most common UK structures and highlight practical implications for funding applications.

This information is not intended to act as financial or legal advice, please do your own research and consult with professionals if you have any questions.

1. Sole Trader

A sole trader is the simplest structure: you and the business are legally the same.

Best for: Freelancers, creatives, sole self-employed individuals.
Funding eligibility:

• Not usually eligible for grants.
• Can access personal finance, start-up loans, and some business support schemes.
• Funders may see sole traders as higher risk due to personal liability.

Pros: Easy setup, minimal admin.
Cons: Limited funding options, personal liability.

2. Limited Company (Ltd)

A limited company is a separate legal entity registered with Companies House.

Best for: Growing small businesses, start-ups, agencies, product or service companies.

Funding eligibility:

• Eligible for business loans, equity investment, and innovation funding (e.g., Innovate UK).
• Rarely eligible for charitable grants unless partnered with a nonprofit.
• Favoured by investors due to structure and liability protection.

Pros: Credibility, limited liability, scalable.
Cons: More reporting and compliance.

3. Partnership / Limited Liability Partnership (LLP)

A partnership involves two or more individuals running a business together; LLPs offer more legal protection.

Best for: Joint ventures, creative partnerships, small professional groups.

Funding eligibility:

• Not commonly eligible for grants.
• Can access certain loans or investment.
• Funders often require a clear partnership agreement.

Pros: Shared responsibility, flexible.
Cons: Limited funding options; liability depends on structure.

4. Community Interest Company (CIC)

A CIC is a social enterprise structure designed for organisations that trade commercially while delivering community impact.

Best for: Social impact ventures, creative community projects, wellbeing and youth organisations.

Funding eligibility:

• Eligible for social investment, community funding, and some grants.
• Not eligible for all charitable grants, but many funders accept CICs due to the asset lock.
• CIC Limited by Guarantee is generally better for grant funding than CIC Limited by Shares.

Pros: Recognised purpose, ability to trade, transparent governance.
Cons: Asset lock limits profit distribution.

5. Registered Charity

Charities exist exclusively for charitable purposes and follow strict governance rules.

Best for: Organisations focused on public benefit, education, arts, community services, or social wellbeing.

Funding eligibility:

• Eligible for the widest range of grants (National Lottery, Arts Council England, Trusts & Foundations).
• Can receive donations, fundraising income, legacies, and Gift Aid.
• Trusted by funders and the public.

Pros: Strong funding opportunities, high public trust, tax benefits.
Cons: Complex governance, strict regulations, limited trading activity.

6. Charitable Incorporated Organisation (CIO)

A CIO is a modern charitable structure with incorporated status.

Best for: New charities and community organisations that want limited liability without running both a charity and a company.

Funding eligibility:

• Fully eligible for charitable grants.
• Growing in popularity among funders due to streamlined reporting.
• Trustees have improved liability protection.

Pros: Simple governance, strong funding access, flexible charity structure.
Cons: Registration can be slower; must meet charity rules.

7. Unincorporated Association

A simple, informal nonprofit structure with no separate legal personality.

Best for: Grassroots groups, early-stage community initiatives, volunteer-led groups.

Funding eligibility:

• Eligible for some local authority or small community grants.
• Not eligible for most large-scale grants due to lack of legal status.
• Cannot employ staff or enter major contracts.

Pros: Easy to form, no cost.
Cons: Limited funding, personal liability for committee members.

Which Structure Is Best for Funding?

Best for Grant Funding

• Registered Charity
• Charitable Incorporated Organisation (CIO)
• CIC Limited by Guarantee

Best for Investment & For-profit Trading

• Limited Company

Best for Freelancers & Early Stages

• Sole Trader
• Partnership

Conclusion

Your organisation’s legal structure directly influences the type of funding you can apply for and how funders perceive your stability and credibility. Whether you’re starting a creative business, launching a community initiative, or setting up a social enterprise, choosing the right structure early on can save time and open more opportunities later.

If you’re planning to seek grants, a CIO, charity, or CIC can give you the strongest foundation. If you’re aiming for commercial growth or investment, a limited company is often the best fit.

For more information, book a chat with us!