Limited Company VS Sole Trader

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Advantages of a Sole Trader:


The sole trader is one of the most popular ways to start a new business in the UK, and it is especially popular among those starting their first business.

  • You are not required to incorporate your company at Companies House.

  • No registration fee is required.

  • Set up a company as a sole trader is comparatively inexpensive. 
  • There is a minimal requirement for bookkeeping, accounting and filling as sole traders can make their own accounts.
  • Sole traders have complete ownership and control over their business.

  • Decisions can be made quickly and efficiently without the need for lengthy, group discussions.

  • The sole trader owns the entire net profit.

  • A sole trader's personal or business information will not be made public.


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Disadvantages of a Sole Trader

  • As there is no legal distinction between a sole trader's personal and business finances, they will have unlimited liability for all business debts and claims.
  • The sole trader is fully responsible and accountable for all business-related decisions.
  • Raising capital can be difficult.
  • A sole trader's entire taxable income is subject to Income Tax and National Insurance.
  • The credibility of sole traders may not be as reassuring to larger companies and lenders as incorporated business structures.
  • Sole traders are perceived as smaller and less established.
  • Sole traders are not as tax-efficient as limited companies.
  • In a sole trader enterprise, it may be impossible to meet the criteria for statutory sick pay and maternity pay.


Also read: How to form offshore company?

Advantages of a Limited Company

Many entrepreneurs prefer a limited company for its credibility and proper business organisation. The advantages of a limited company listed below may persuade you to choose this over a sole trader registration.

  • Limited companies are separate legal entities from their owners.
  • A limited company provides limited liability, which means that shareholders'/guarantors' personal finances/assets are protected over and above their investment/guarantee agreement with the company.
  • Limited liabilities exude professionalism and credibility.
  • It is always perceived as a larger and more established corporation.
  • Limited companies are more appealing to a wider range of potential clients.
  • Raising capital from lenders/investors is easier with a limited company.
  • Scaling and growing a business is easier for limited companies.
  • Even if the original company owners are no longer involved, a limited company can continue its operation.
  • All taxable income is subject to corporation tax.
  • Limited companies are more tax-efficient.
  • Directors can pay themselves a salary plus dividends, which has far better tax implications.
  • Shares can be exchanged for capital investment.


Also read: Requirements of a limited company UK

Disadvantages of a Limited Company

  • Although company registration takes little time, a limited company must be incorporated at Companies House.
  • It is necessary to register with HMRC for corporation tax purposes.
  • Limited companies may be more expensive to establish.
  • There are some restrictions while choosing a company name.
  • If you are an undischarged bankrupt or a disqualified director, you cannot form a limited company.
  • The registered office address must be in the same region of the United Kingdom where the company was registered.
  • A service address is required for directors, subscribers, secretaries, and People with Significant Control (PSCs).
  • Details of the registered office address, service addresses, directors, shareholders, PSC, filing history, and financial activity are all made public.
  • Accounting and filing tasks are time-consuming in a limited company, so administrative tasks in a sole trader business are far easier. As a result, an accountant is required.

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