What is the difference between a sole trader and a limited company?

by Vidit Agarwal Marketing Director

What is a Sole Trader?

Fundamentally, a sole trader is essentially a self-employed person, who don't set up a limited company and is the sole owner of your own business. They can think over to employ other people but they are the only owner. It’s very easy to becoming a sole trader for starting a new business. All you have to do is register your business name and you can start trading.

What is a Limited Company?

A type of business structure that has been incorporated at Companies House as a legal ‘person’ with a unique company registration number and has a separate legal identity from its owners (typically shareholders) and its managers (formally called directors) is known as a limited company structure. In the UK, mainly there are three types of limited companies:

Private company limited by shares
Public limited company
Private company limited by guarantee

Sole trader or limited company

For most this is a choice between being a sole trader and a limited company. When is the right time to incorporate your business? Each structure has its own advantages and disadvantages for your circumstances. You can compare the advantage and disadvantages of your business structure that best suits you. No matter how it is big or small, but every business has a legal structure. Here is a quick guide about sole trader to a limited company.

In summary

Every business has its own structure and has no right or wrong structure; it just suits the individual situation. Once you have a complete understanding of the benefits, you can take an informed decision and it’s upon to you. If you have started working as a freelancer or sole trader, it is possible for you to wish to form a limited company.

If you are thinking over to set up and running your own Limited Company and but not much aware about how and where to start, you have come to the right place. Professional accountants in South end on Sea works with both structures and often advises individuals about which path to take. If you have a question or simply want some advice, book a free consultation for further help and support.