Any business registered with the Companies House must have a legal structure. While the majority chooses to identify themselves as ‘sole traders’, ‘limited company’ is just as popular. Let’s look into the similarities, differences and which best suits your business model by looking into Sole Trade Vs Limited Company – Comparison.
What’s a Sole Trader?
In its simplest, a sole trader is a business structure where a self-employed individual is the sole owner of the business.
What’s a Limited Company?
A limited company is a legal structure where the business has an identity, separate from its directors and shareholders.
Sole Trade Vs Limited Company Compared
Advantages of registering as Sole Traders
- Of all the business structures out there, Sole Traders are the easiest to set up and relatively require a very little amount of paperwork.
- Unlike Limited Companies, the personal details of the directors or shareholders are not available to the public.
Disadvantages of operating as a Sole Trader:
- Since Sole Traders are not separate legal entities, the owner holds personal liability. If things go south, a sole trader risks losing personal assets.
- Expansion opportunities are limited, as raising capital is tough. Banks and investors generally prefer limited companies over sole traders when it comes to financing.
- Although tax benefits are appealing at lower earnings, it isn’t beyond a certain level. So much so, that it isn’t lucrative to remain a sole trader.
Advantages of a Limited Company:
- The preeminent advantage of a Limited Company is its distinction as a legal entity and the limited liability that comes along with it. When the company is in dire straits, the personal assets of the stakeholders, nor that of the directors are compromised. The company stands to lose only what’s put into it.
- When it comes to tax savings, a Limited Company tends to be lucrative in the long run. Unlike a Sole Trader who’s to pay an income tax, incorporated businesses pay corporation tax – a tax with plenteous deductibles and allowances.
- Registering your business as a Limited Company entitles you the rights to the name – a protection that isn’t offered to Sole Traders.
Disadvantages of a Limited Company
- As opposed to Sole Traders, Limited Companies are required to oblige to a number of regulations, including those laid out by the Director’s Fiduciary Responsibilities.
- The personal details, including the residential addresses of the directors, are part of the public domain and can be accessed by anyone. Although you can keep your director’s residential address private using Director’s address services and it’s a common practice in the UK.
Now you can register as a Limited Company in no time, with simple online registration process starting from as low as £9.99.