There is no one-size-fits-all answer, and the ideal business structure to adopt should be determined by your unique personal circumstances.
How are they different?
A sole trader is someone who works for themselves and is the only proprietor of their firm.
As a result, these sorts of enterprises are extremely popular among sole owners, individual self-contractors, and consultants. Many single proprietors do business under their own names since it is not essential to register a distinct business or trade name.
A limited company (LC) is a kind of organisation that limits the amount of liability held by the shareholders of the firm. This means that the company can enter into contracts and be sued like an individual.
If the company is sued, its directors and shareholders are not forced to sell their personal assets to pay the debt, unless they have been found guilty of any wrongdoing or have offered personal guarantees
Pros and cons of being a sole trader
- Sole traders keep all of their profits for themselves
- They also get to operate the company as they see fit, making all major decisions on their own
- Starting out as a sole trader is one of the most legitimate of all kinds of ownership.
- It is subject to fewer laws and restrictions than other sorts of organisations.
- It is not expensive to start
- You can be more versatile as your company grows
- You will be held accountable for any company debts. This implies that personal assets, such as a vehicle or a home, may be sold to pay off any debt.
- It is more difficult to take a vacation or any time off for yourself
- Frequently work long hours
- To keep labour expenses low, they will frequently resist assigning responsibilities like purchasing or advertising to others, preferring to save money by performing the work themselves
- Sole traders can only raise a limited amount of finance. They may receive funds from family and friends, as well as spend their own savings
Pros and cons of a limited company
- You may end up paying less tax
- You could claim more tax relief on expenses
- Personal assets are protected
- The company tends to give more credibility
- Accounts need to be filed every year
- Split of Ownership
- Changes to the Company- When this impacts a limited company (a director resigns for example), Companies House must be informed immediately
- Reduced privacy
- Increased accountancy fees
So: Sole trader or limited company?
Small businesses and self-employed tradespeople may prefer the convenience and control over earnings that sole trading provides, whereas those who want to start a larger company with many employees may be enticed by the security that registering as a limited company provides, particularly in terms of liability. It all comes down to your personal business strategy and long-term ambitions.