Reviewed for 2018
Sole trader or limited company? Check out our definitions, compare the advantages and disadvantages and find out which business structure best suits your needs.
Every business - no matter how big or small - must have a legal structure, with the bulk choosing to be either a sole trader or a limited company. An estimated 3.4 million operate as sole traders, with 1.9 million operating as limited companies – so what is the difference between the two? And which could be the best fit for your business?
Get your free in-depth guide, which explains the advantages and disadvantages of the different legal structures for a business.
First things first, let’s kick off with some definitions.
A sole trader is essentially a self-employed person who is the sole owner of their business. It’s the simplest business structure out there - which is probably why it’s the most popular – and you can set up as one via the GOV.UK website (you’ll need to do this for tax purposes).
A limited company is a type of business structure that has its own legal identity, separate from its owners (shareholders) and its managers (directors). This remains the case even if it’s run by just one person, acting as shareholder and director.
Now, setting up as either structure will bring its own benefits and drawbacks, so starting with the sole trader option let's take a closer look…
So, what benefits and drawbacks does setting up a limited company bring?
Ultimately then, it’s vital to weigh up the difference between sole trader and limited company, as which structure you choose could impact on everything from profits to paperwork. Don’t rush into any decision and speak to an accountant if you’re unsure, as their expertise can be invaluable when it comes to the tax facts.
Elsewhere, investigate insurance - regardless of which structure you choose - as running either type of business will bring its own unique risks. You can discover more on our dedicated sole trader insurance and limited company insurance pages, built to give you a basic overview of what you'll need.
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