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.