The Differences Between Sole Trader vs Limited Company

Starting a new venture can be risky. For this reason, no matter the size of your business, it’s critical that it has a legal structure.

The question is, which one will work best for your particular venture?

Most business owners choose between two options: limited company and sole trader. The sole trader option appears to be the most common of the two, but the limited company option may be most appropriate for your situation.

Here’s a rundown on the difference between a limited company and the sole trader legal structure, and how they can both benefit your business long term. Let’s get started!

The Differences Between Sole Trader vs Limited Company

Starting a new venture can be risky. For this reason, no matter the size of your business, it’s critical that it has a legal structure.

The question is, which one will work best for your particular venture?

Most business owners choose between two options: limited company and sole trader. The sole trader option appears to be the most common of the two, but the limited company option may be most appropriate for your situation.

Here’s a rundown on the difference between a limited company and the sole trader legal structure, and how they can both benefit your business long term. Let’s get started!

Soletrader

Sole traders are essentially self-employed individuals who are the sole owners of their companies.

The sole trader option is the simplest legal business structure option available, which is likely why it is so popular. That’s because this option involves very little paperwork.

Another benefit of the sole trader structure is that, with this option, you can enjoy more privacy than you would with an incorporated business. Why? Because details about incorporated businesses can easily be accessed through Companies House.

A drawback of being a sole trader, however, is that if your business accrues debt, then you will be personally liable for it. As a result, you could end up losing your personal assets if you get sued and the plaintiff wins.

In addition, with the sole trader option, raising funding may be tricky. That’s because investors and banks often prefer to finance limited companies.
Tax rates for sole traders can also be hefty when compared with limited companies.

Limited Company

Limited companies are businesses with their own legal identities. These businesses are thus separate from their owners and managers.

If you choose this option, your personal assets won’t be exposed in a lawsuit situation. As a result, you’ll lose only what you have put into your business.

Yet another perk of having a limited company is that you’ll pay corporation tax rather than income tax. This will help you to save money and thus enjoy more profitability.

Of course, having a limited company also means you’ll have extra responsibilities and be required to complete additional paperwork. In addition, you will have to pay an incorporation fee.

Finally, as mentioned before, all of your company’s details must be provided for the public to see in the interest of transparency. If this isn’t appealing to you, then forming a limited company may not be the best choice in your situation.

Soletrader

Sole traders are essentially self-employed individuals who are the sole owners of their companies.

The sole trader option is the simplest legal business structure option available, which is likely why it is so popular. That’s because this option involves very little paperwork.

Another benefit of the sole trader structure is that, with this option, you can enjoy more privacy than you would with an incorporated business. Why? Because details about incorporated businesses can easily be accessed through Companies House.

A drawback of being a sole trader, however, is that if your business accrues debt, then you will be personally liable for it. As a result, you could end up losing your personal assets if you get sued and the plaintiff wins.

In addition, with the sole trader option, raising funding may be tricky. That’s because investors and banks often prefer to finance limited companies.
Tax rates for sole traders can also be hefty when compared with limited companies.

Limited Company

Limited companies are businesses with their own legal identities. These businesses are thus separate from their owners and managers.

If you choose this option, your personal assets won’t be exposed in a lawsuit situation. As a result, you’ll lose only what you have put into your business.

Yet another perk of having a limited company is that you’ll pay corporation tax rather than income tax. This will help you to save money and thus enjoy more profitability.

Of course, having a limited company also means you’ll have extra responsibilities and be required to complete additional paperwork. In addition, you will have to pay an incorporation fee.

Finally, as mentioned before, all of your company’s details must be provided for the public to see in the interest of transparency. If this isn’t appealing to you, then forming a limited company may not be the best choice in your situation.

How We Can Help

At H Barrett Bookkeeping, we can help you to set up your company using the limited company or the sole trader option. In addition, we are proud to offer a wide array of first-rate bookkeeping services tailored to your unique venture. For instance, in addition to helping you to maintain your transaction records, we can forecast your future cash flow for you. We can furthermore submit tax returns for you and even clean up your books as needed.

Get in touch with us today to learn more about how we can help you to take your business to the next level in the days ahead.

How We Can Help

At H Barrett Bookkeeping, we can help you to set up your company using the limited company or the sole trader option. In addition, we are proud to offer a wide array of first-rate bookkeeping services tailored to your unique venture. For instance, in addition to helping you to maintain your transaction records, we can forecast your future cash flow for you. We can furthermore submit tax returns for you and even clean up your books as needed.

Get in touch with us today to learn more about how we can help you to take your business to the next level in the days ahead.