Every business needs a 'structure' - the type of legal structure the business operates under so everyone knows what type of business you are. There are three main types:
a) a 'sole trader'
b) a 'partnership'
c) a company
Why do you need to decide on a structure?
Inland Revenue has different tax rates for different structures, and your customers will want to know whether you are a company or sole trader, so they know exactly who they are contracting with, and the risks associated with the transaction.
As the business begins to thrive, some people transition from sole trader to partnership to company, as each structure becomes slightly more complicated. You should seek both legal and accountancy advice before commencing in business.