Should I set up as a sole trader or limited company?

By Graham | January 31, 2023

There are three main legal structures for starting a business: sole trader, partnership, and limited company. Deciding which structure to choose can have a significant impact on your business, so it’s important to consider the pros and cons of each option before making a decision.

Table of Contents

Sole trader

Pros: Easy to set up and manage, no legal formalities, all profits are yours, and you have complete control over the business.
Cons: Unlimited liability, which means you are personally responsible for all debts and obligations of the business. This can put your personal assets, such as your home, at risk.

Partnership

Pros: Easy to set up and manage, pooling resources and skills with partners can lead to increased profitability, and you have the ability to make important decisions together.
Cons: Unlimited liability, which means you are personally responsible for all debts and obligations of the business. This can put your personal assets at risk. Conflicts between partners can also arise and be difficult to resolve.

Limited company

Pros: Limited liability, which means your personal assets are protected from business debts. This provides greater peace of mind and stability for you and your family. Separation of ownership and management, making it easier to bring in outside investors or directors. Also, limited companies have lower tax rates than sole traders or partnerships, meaning you can retain more of your profits.
Cons: More complex to set up and manage, with legal and administrative requirements such as preparing annual accounts and holding annual meetings. Also, you must appoint directors, who must act in the best interests of the company, rather than just yourself.

The structure you choose will depend on your personal circumstances, the size and type of business you plan to start, and your long-term goals. If you are a one-person business and prefer simplicity and flexibility, a sole trader structure may be right for you. If you plan to run a larger business with partners, a partnership structure may be the best option. If you prefer the stability and protection of limited liability, a limited company may be the best choice.

This is a summary of the most important information and should not be considered as advice. It’s important to seek professional advice to help you make the right decision for your business and we would be pleased to assist; contact us today.