Sole Trader vs. Limited Company – Your Choice

For the vast majority of people thinking of setting up their own business, one of the most confusing aspects is whether to register the business as a sole trader or as a limited company. As with anything in life, there are advantages and disadvantages to both.

A sole trader is an individual that runs his/her own business and is commonly referred to as “self employed”. A lot of people select the sole trader route as it relatively simple to establish or because they want to be self employed and run a small business. Not everyone dreams of being a millionaire!
On the other hand, a limited company is privately owned with shareholders having limited liability. The majority of newly formed companies in the UK are incorporated as limited companies. The fact that limited liability means that the owner’s liability for any debts of the company are limited is an attractive option.

With that being said, what are the key differences between a limited company and sole trader?
• A sole trader is a self-employed individual.
• He/she is the business and is liable for all the debts as well as receiving all the profits.
• A limited company is a separate legal entity from its owners.
• A limited company must publish their accounts with Companies House and make them publicly available.
• A limited company must also disclose details of Directors to Companies House each year.

This leads us nicely on to our final question, which is the best option for you?

Well, that depends on your own personal circumstances really. Some of the things you may wish to consider include:
• How much money do you anticipate on making in profits?
• What would you like to do with it?
• Would you like to gain some tax benefits?
• Would you like to protect your personal assets?
• Do you want a more professional feel to your business by forming a limited company?

Ultimately you need to decide what route will work best for you. Potentially you may start off as a sole trader and change at some point in the future to a limited company. To find out what option is right for you, seek professional advice. Whichever route you take, good luck!