Starting a new business? Sole trader or limited company – Which is best?
If you’re starting a new business, you may be wondering whether you should set it up as a sole trader or limited company. Here, we discuss the advantages and disadvantages of each to help you to make a decision.
Sole trader pros and cons
When it comes to business structures, sole trader is the most common and is particularly popular with those starting a new business. This is because it’s the easiest structure to set up and it enables you to start immediately. A sole trader is a self-employed individual who solely owns the business and has complete control over their venture, unlike limited companies which may have directors and shareholders to consult.
As a sole trader, you won’t need to register your business with Companies House which means that your details can be kept private. The downside to this is that others could use the name of your business which may cause confusion and make it difficult to secure the best website domain name. You’ll also have unlimited liability which means that you have no protection should your business go into debt and your personal assets, such as your house and car, could be at risk.
There’s far less paperwork to complete as a sole trader, and you won’t be required to keep as detailed records as those running a limited company. However, you may also find that it’s difficult to raise finance as sole traders are less favoured by banks and investors, which could ultimately slow down the growth of your business.
Limited company pros and cons
As the owner of a limited company, you’ll be legally separate from the business which means that your personal assets are safe and you can only lose what you’ve put into the company. Unlike sole traders, you’ll need to register the name of your business which means that no-one else can use it, but this does mean that your details will be available for anyone to view via Companies House.
Limited companies pay corporation tax rather than income tax which means that you’ll pay a lower rate on your profits, and you’ll also have access to a wider range of allowances and tax deductibles than a sole trader. Being a limited company does come with more responsibilities and additional paperwork because of this, such as annual company tax returns and annual accounts, and you will be required to keep strict records which can be time-consuming.
Whether being a sole trader or a limited company is best really comes down to your own personal preference as there are advantages and disadvantages that come with each. At Hugh Davies & Co. we’re on hand to help you to decide which option is best for you and to assist with your business and tax enquiries. Contact our team for professional business advice today!