SOLE TRADERIf you’re a sole trader:
- you run your own business as an individual and are self-employed
- you can keep all your business’s profits after you’ve paid tax on them
- you’re personally responsible for any losses your business makes
- you must also follow certain rules on running and naming your business.
LIMITED COMPANIESA limited company is a company
limited by shares or
limited by guarantee.
Limited by shares companies are usually businesses that make a profit. This means the company:
- is legally separate from the people who run it
- has separate finances from your personal ones
- has shares and shareholders
- can keep any profits it makes after paying tax or pay it out to shareholders as a dividend
Limited by guarantee companies are usually ‘not for profit’. This means the company:
- is legally separate from the people who run it
- has separate finances from your personal ones
- has guarantors and a ‘guaranteed amount’
- invests profits it makes back into the company.
It is always good to discuss through ideas with your accountant first, before starting a business. The difference between choosing to become a sole trader or a limited company will depend on your personal circumstances and business concept. Your accountant should offer full advice as to which is the better option for your individual situation.
This article helps explains five important facts you need to consider before choosing which legal structure is best for you and your business.