When starting off a business by yourself one of the biggest decisions you will face is whether to set up as a limited company or sole trader?
The answer to this question may be pretty straightforward for some entrepreneurs but there are some important considerations and implication to both structures.
We would say the main consideration when deciding on a structure is the liability of the individuals running the business. A sole trader would be liable for any business debts and could lose personal assets including their house. With a limited company, the debts are limited to the company assets.
However, this protection comes with added responsibilities as directors of a limited company are responsible for ensuring accounts are filed on time and you sacrifice some privacy as details of the business are available on companies house.
There is also the tax implications for both structures. A sole trader is charged standard income tax rates while limited companies are taxed corporation tax which are typically less than income tax meaning a limited company would be more profitable after tax from generating the same level of profit as a sole trader.
Limited Company Summary
- Losses limited to company assets
- Directors are responsible for filing yearly accounts
- Details listed on companies house
- Profits taxed by corporation tax
Sole Trader Summary
- You could lose your personal assets if the business gets into trouble
- Less paperwork than a limited company
- The details of the business are not listed on companies house
- Profits taxed by income tax
If you decide to open a limited company there are various documents you will need to be completed a filed with companies house. There are companies that assist with the formation to make the process quicker and can even provide you with registered address services and mail handling.
