What’s the difference between a Sole Trader and a Limited Company?

When starting out in business it can be overwhelming trying to decide which business structure to go for. Do you become a sole trader or set up a limited company? What are the differences between the two?

Sole traders are individuals who trade on their own behalf. This is the simplest and most common type of business structure. If you’re a sole trader, you’re self-employed and run your business on your own. You’re also personally responsible for any losses or debts your business incurs.

A limited company, on the other hand, is a separate legal entity to its owners. This means that the company can enter into contracts and own property in its own name. The liability of the owners is limited to their investment into the business and their personal finances are not affected.

These are the main key differences however there are other ways in which the two structures differ.

Raising Finances

A sole trader may find it more difficult than a Limited Company to raise finances because they are personally liable for debts. Therefore banks may view them as high risk. Sole traders don’t have the same limited liability protection so their personal assets are at risk if the business fails.

A Limited Company may find it easier to raise finance as they can offer shares to investors in return for investment. This means that the risks are spread and the liability is with the business and not the individuals.


A Limited Company holds further responsibilities such as:  Director’s Fiduciary Responsibilities, which are your legal obligations as a director of the company. This includes being transparent and honest with shareholders, acting in the best interests of the company and not putting your own interests first.

As a sole trader, you have full control over all aspects of the business as you are the decision maker. You don’t have to answer to anyone else and can make all the decisions yourself. However, this isn’t always as easy as it sounds!


When setting up a Limited Company there will be costs involved such as company registration fees and accountancy fees. You will also need to file annual accounts with Companies House. You are required to file your first accounts 21 months after the date you register with Companies House. When you register your business you will automatically be registered for Corporation Tax at the same time. If you are the only director you will need to register yourself for PAYE. 

There are no such costs when setting up as a sole trader as you don’t have to register with Companies House. However, you will need to register your business and apply for a UTR code in order to do your own self-assessment tax return and may need to employ a bookkeeper to help. You must register yourself as self-employed before 5th October in your second tax year.


If you require the services of a bookkeeper or would like some guidance on which business structure would best suit you, then please get in touch.

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