Setting Up a Vegan Business: How to Choose the Right Legal Structure

If you’re planning to launch a vegan business or organisation, or you have a growing business, you may be wondering which legal structure it should have for paying taxes or accessing funding.

In today’s blog, we’ll identify the different business types in terms of legal structure and explore some of the pros and cons to consider. As many of our Ethical Globe members are in the UK, we’ll mainly focus on UK requirements around legal status or structure, but we will also touch on considerations for your organisation if you’re located outside of the UK.

This article isn’t intended to offer legal advice. We always recommend that you do your own research and talk to a solicitor and/or accountant about the best legal structure for your business.

Why the legal structure of your business matters

When you run a business or organisation, the legal structure you choose can have major implications in terms of:

• How much tax you pay
• When tax payments are made
• Your degree of personal liability should the business fail
• Administrative work
• Signing contracts
• Accessing financial support
• Recruitment processes
• Owning assets
• Compliance and reporting

Before you make any decisions, it’s important to consider your business’s values, current size, potential growth, stakeholders, and legal requirements.

The information below will hopefully serve as a starting point for your research.

The different legal structures for businesses and organisations

1.     Sole Trader

Essentially, a sole trader is a self-employed person (i.e. a person who doesn’t work for an employer or pay tax through PAYE) who owns and runs their own business as an individual.

Sole traders represent approximately 56% of all businesses in the UK; this number is nearer to 70% in the US.

The pros of being a sole trader

It’s easy and inexpensive to register as a sole trader in the UK, and you have complete control over your business, which means you can make decisions quickly without gaining a partner’s or shareholders’ consent.

Sole traders typically have lower registration and start-up costs and simplified taxes where you complete a self-assessment to see how much National Insurance and tax you need to pay if over the threshold for payments (currently, there is a personal allowance of £12,570 of income before you start paying tax). You can offset your business expenses against your trading income, reducing how much of your earnings you will pay tax on.

As a sole trader, all your profits will go to you rather than being shared with shareholders, and you will have financial privacy under HMRC’s confidentiality rules.

If you run a vegan business or organisation that needs to liaise with local authorities, being a sole trader can streamline the process of obtaining permits or licences.

The cons of being a sole trader

Naturally, there are downsides to consider before you decide to become a sole trader; it isn’t a model that suits all businesses.

As a sole trader working alone, you have unlimited liability for your business, which means that your personal assets are at risk if your business fails. You may also find that your business has limited growth potential because there may be barriers to accessing capital without a more formal business structure in place to appease lenders.

You should also consider what might happen to your business if you become incapacitated for any reason.

Setting up as a sole trader

The Gov.uk website features a step-by-step guide to the simple and free process of registering as a sole trader: https://www.gov.uk/set-up-as-sole-trader

This guide will tell you more about what records you need to keep to complete your annual self-assessment.

Most small businesses can now use what’s known as “cash basis accounting”, which means you only record income or expenses when money enters or leaves your account, rather than the money being counted according to the date on an invoice or receipt.

This is helpful because it means you pay tax on money received rather than money invoiced. An example of this would be if you sent an invoice on 10^th March 2025 (falling in the 2024-2025 tax year), but it didn’t get settled until 10^th April 2025 (falling in the 2025-2026 tax year). With cash basis accounting, the tax for that payment would be calculated in the 2025-2026 tax year. If you end up with an unsettled invoice, you wouldn’t be taxed on it as the money hasn’t been received.

2.     Limited Company

Many small businesses start out as sole traders but decide to switch to a Limited Company once their income increases or to protect their business name or access greater finance opportunities, as just a few examples.

A Limited Company is a business structure that has a separate legal identity from its owners or shareholders and is protected by limited liability. This means that the company’s finances are separate from the personal finances of its owners, and the owners are not personally liable for the company’s debts.

The pros of a Limited Company

Setting up a Limited Company has many benefits in addition to protecting your personal assets through limited liability.

Generally speaking, a Limited Company is a more tax efficient way to trade than being a sole trader, especially once your income is over £50,000 a year.

Limited companies pay corporation tax on their profits with different taxation levels for different profit brackets. Limited company owners typically pay themselves a small salary but then extract further profits as dividends (a payment a company makes to its shareholders in the event of a profit).

This is a crucial difference between a Limited Company and a sole trader. You see, when you’re a sole trader, all your profits are subject to income tax and National Insurance Contributions. For a Limited Company, however, National Insurance is not paid on dividends. Also, a sole trader earning over £50,270 a year can pay as much as 40% tax on this, whereas a Limited Company bringing in a similar amount would currently be taxed at a rate of 26.5%.

Limited Companies are often seen as more professional than sole traders and, in the UK, must be registered with Companies House where the annual returns and financial statements are open to the public. This creates a sense of transparency and credibility.

In addition, Limited Companies can raise capital by selling shares to investors and may be able to access a wider range of loans, venture capital, grants, and crowdfunding than a sole trader.

Once a Limited Company’s business name is chosen and registered with Companies House, it’s protected by law and nobody else can use it. This may be important to your vegan organisation.

The cons of a Limited Company

Again, there are disadvantages to running a Limited Company. For many people, the biggest challenge is the administrative burden. There’s a lot to learn when you have a Limited Company, from selling shares to paying dividends or filing the necessary accounts paperwork. It’s usually advisable to seek the support of a reputable accountant who can help you navigate the many financial and legal obligations associated with a Limited Company.

A Director of a Limited Company may have less freedom to make decisions than a sole trader. They may also have personal liability for breaches of health and safety regulations, environmental regulations, or employment laws.

Setting up a Limited Company

The Gov.uk website features a step-by-step guide to how to set up a limited company: https://www.gov.uk/set-up-limited-company

This includes how to determine if it’s the right option for your vegan organisation, how to choose a company director, choosing a shareholder or guarantor, preparing the appropriate documentation about your company, the records you’ll need to keep, and how to register.

It currently costs £50 to register as a Limited Company with Companies House. You’ll also need to register for Corporation Tax within three months of starting to do business (although most people register online as a business and for Corporation Tax at the same time).

3.     Partnership

A partnership in the UK is a business structure where two or more individuals (or entities) share ownership and run the business together. Partners share responsibilities, profits, and liabilities. Partnerships can be formalised with a Partnership Agreement, but one can also operate informally, though this is not recommended due to potential legal risks.

There are different types of partnerships in the UK:

1. General Partnership (GP): All partners share equal responsibility for the management and liabilities of the business.
2. Limited Partnership (LP): Some partners have limited liability (their financial risk is capped to the amount they’ve invested), while at least one partner retains unlimited liability and manages the business.
3. Limited Liability Partnership (LLP): A hybrid between a partnership and a limited company, where all partners have limited liability, and the business exists as a separate legal entity from the partners.

The pros of a Partnership

As the name suggests, a partnership means that there are two or more partners to share the workload, ideas, expertise, and responsibilities associated with running a business. This can reduce the stress of feeling like everything is on your shoulders and improve the decision-making process (two heads are better than one!)

With multiple partners contributing capital, skills, and contacts, the business may have more resources at its disposal compared to a sole trader setup. In addition, Partnerships can be more flexible than Limited Companies in terms of how the business is managed and profits are shared.

Unlike a Limited Company, Partnerships are not subject to Corporation Tax. Instead, each partner is taxed on their share of the profits.

General Partnerships, in particular, are relatively easy to establish compared to Limited Companies, and require less paperwork and formal registration.

The cons of a Partnership

In a General Partnership, all partners are jointly liable for business debts and legal claims, which means that – as with a sole trader – personal assets are at risk if the business incurs losses.

Something to be aware of is that, if one partner makes a bad decision or runs up debt, the other partners can be held liable.

The reality is that businesses don’t always run smoothly. Debt and bad decisions aside, Partnerships can be impacted by a disagreement between partners, especially if responsibilities, profit shares, or management approaches are not clearly defined. One way around this is to have a formal agreement to outline expectations and responsibilities.

Profits are shared between the business partners, which may reduce your individual earnings when compared to operating as a sole trader.

Setting up a Partnership

There are slightly different steps to setting up a business as a Partnership, depending on whether it will be a GP, LP, or LLP.

The Gov.uk website is a good starting point to find out more and includes links to register: https://www.gov.uk/set-up-business-partnership

There’s no cost to set up a Partnership. Each member must be registered during the process and must register as self-employed. You must register a partnership by 5^th October in the second tax year of operating.

If you want to create an LLP, there are further requirements, which are explained in this helpful article: https://osome.com/uk/guides/how-to-register-an-llp/

4.     Cooperative

Cooperative UK describes a cooperative (also known as a co-op) as “a business or organisation that’s owned and controlled by its members to meet their shared needs. The members can be its customers, employees, residents, or suppliers, who have a say in how the co-op is run”.

In addition to determining how a co-op is run, all members choose what to do with the profits, whether that’s paying themselves, investing in the business, or contributing to the wider community.

The pros of a cooperative

The idea of a cooperative is that everyone works together for mutual benefit. Cooperative members tend to be the people closest to the business, wanting it to thrive because it will enrich their community and the individual lives within it.

A cooperative is democratically controlled by its members, all of whom share the profits, usually in proportion to their involvement or investment in the business. This means that members are likely to be personally invested in the business’s success.

Less than one percent of businesses in the UK are cooperatives, and yet this structure of business is twice as likely to survive the first five years of operation than any other business type. It could be that people just don’t know that running a cooperative is an option!

One challenge may be getting enough people on board to form a cooperative, but this is a business model that aligns well with the ethical and community-based values that are often so important to vegan organisations.

Cooperatives are generally considered to be not-for-profit organisations, which means that they receive various tax exemptions and concessions.

Many successful cooperatives have help to revitalise their communities and give members access to products and services that might otherwise not be available.

The cons of a cooperative

Cooperatives can be more complicated to set up than some other business structures. You need to fully understand the stakeholders and clearly define their roles and responsibilities.

Decisions can be slower due to group decision-making, which means you may not be able to capitalise on opportunities, especially if they’re time sensitive. It may also be harder to attract outside investment, which can limit how much the business is able to grow.

Another challenge is keeping members engaged. People may be nervous about becoming a co-op member because they share the risks as well as the profits. Also, they may be passionate about the business initially, but let their commitment tail off in the face of long-term projects.

Setting up a cooperative

Co-ops can adopt a variety of different structures, such as a Cooperative Society, a Community Benefit Society, a Charitable Community Benefit Society, a Community Interest Company (limited by guarantee, or limited by shares), a Private Limited Company, and more.

Cooperatives UK has an excellent step-by-step guide to setting up a cooperative that should help you decide whether this is the right option for your business: https://www.uk.coop/start-new-co-op/start

Profit vs. Non-Profit Businesses

The models we’ve explored above have focused on businesses where the aim is to make a profit that’s distributed to the owners or shareholders.

However, there are other models that might be more suitable for your vegan organisation, especially if you run something like a sanctuary or a campaign. These are known as non-profit or not-for-profit models, where any surplus money is reinvested in the business or used for charitable purposes.

You can read more about the different non-profit legal structures at Beyond Profit.

If you run a non-profit organisation, you will usually be able to apply for grants and charitable funding to further a specific social or ethical mission. The downside is that there are legal restrictions on distributing profits and there is potentially less flexibility for growth.

B Corp Certification

If you are operating in the ethical sphere (or are thinking of operating in the ethical sphere), you may have heard about B Corp Certification.

The aim of B Corp Certification is to signal and champion businesses that meet high standards of social and environmental performance, transparency, and accountability.

To do this, B Corp says a business must be able to:

• Demonstrate high social and environmental performance by achieving a B Impact Assessment score of 80 or above and passing B Corp’s risk review. Multinational corporations must also meet baseline requirement standards.
• Make a legal commitment by changing their corporate governance structure to be accountable to all stakeholders, not just shareholders, and achieve benefit corporation status if available in their area.
• Exhibit transparency by allowing information about their performance measured against B Lab’s standards to be publicly available on their B Corp profile on B Lab’s website.

One of the main advantages of achieving B Corp Certification is that it sends a clear message about credibility and trust to your customers.

However, it’s important to make sure that you have the time and budget to certify as a B Corp-approved business. Fees are tiered according to business revenue (you can calculate your likely fees using the Find Your Fees page) and will potentially be upwards of £1,500 in the first year, even for the smallest of businesses.

That being said, sustainability investors are attracted to B Corp Certified businesses, as are customers and potential employees. Networking opportunities abound at exclusive B Corp events, and B Corp businesses are encouraged to collaborate and share best practices.

International differences in business structure

As we’ve seen, the UK offers a straightforward registration process for most business structures; Limited Companies and sole traders are common.

Similar structures tend to popular in other countries, although the names might differ.

In the US, many companies operate as a Limited Liability Company (LLC), which is similar to the UK’s Limited Company, but with additional flexibility that combines the ease of a partnership with the protection of a corporation. B Corp businesses also have strong traction in America.

Sole traders and Proprietary Limited Companies (similar to the UK’s Limited Company) are common in Australia, but there’s a strong focus on securing eco-friendly business certifications, regardless of the business structure.

In the EU, cooperative models are more prominent, especially in countries like Spain and Italy.

The right structure for your business

As you can see, there are many choices to navigate when it comes to choosing the right legal structure for your business.

The best option will depend on your business goals, scale, ethical stance, finances, whether you’re working alone or as a team, legislation in your sector, and more.

In some instances, there is scope to change your business structure as your organisation evolves. As we’ve seen, it’s common for a sole trader to become a Limited Company for a variety of reasons. For some businesses though, it’s better to start as you mean to go on.

As this is such a vital part of ensuring your business success, we would always recommend that you seek legal advice or consult with business advisors to identify the right structure for your vegan organisation.

Whatever structure it takes, we wish you the best.