Sole trader vs Limited company

Sole Trader or Partnership Limited Company
What is a sole trader?
A sole trader is an individual running his own business. He is self employed.
What is a limited company?
A limited company is a separate legal entity, i.e. a new person in law. It is a separate entity from the person(s) who incorporated it.
What is a partnership? When more than one individual start a business together it is called a Partnership.
Liability
Sole traders or partners of a business are liable to the business’s debts.
Each partner is personally liable for any debts that the other partners may take for the business.
Liability
If the company cannot pay it own debts, the directors or the shareholders of the company will not be held responsible for it.
Registration
Sole traders or Partnerships are not required to register their business with Companies House. However, you must register as self-employed with HM Revenue & Customs.

Registration
To form a company you must register it with Companies house. Company formation is a relatively simple process using our online company formation gateway. Certificate of incorporation will be issued giving a date of incorporation and a company number.
Ownership
The individual(s) are the owners of the business.
Ownership
The shareholders are the owners of the business and directors are the employees of the business.
In a small company scenario the sole director may also the only shareholder of the limited company. This makes him or her 100% owner of the business.
Protection of business name-
Don’t get caught by companies trying to sell you business name registration. There is no requirement for sole traders or partnerships to register their business name, and registering it with such agencies will not protect the business name. However, you may want to protect your business name by registering it with companies house as a dormant company. In this scenario, you would keep the limited company dormant, while trading as a sole trader or partnership. Buy our bronze package at only £25 +vat if you want to register a dormant company.
Protection of business name –
Registering a limited company with companies house will protect your business name. No one else will be allowed to form another company resembling your business name. Read notes on ‘same as names’.
Corporate Identity
Sole traders or partnerships don’t really have any special corporate identity. It is harder for sole traders to borrow money or to obtain investment, and of course sole traders or partnerships do not have any shares to issue to investors.
Corporate Identity
This is a big advantage in favour of setting up a limited company. Limited companies carry a corporate image and this has several benefits:
– Shares can be issued to investors to raise funds.
– Depending upon the nature of your business you may attract more customers as they will perceive you as a bigger organisation.
– In some business to business sectors, businesses will only do business with a limited company.
Continuity of Business
The business would normally end with the death of the sole trader or bankruptcy.
Continuity of Business
The business can survive after the death of its directors. Shares can easily be transferred from one person to another and new directors can be easily appointed.
Income
You will not take a salary but take out profit or in the case of a partnership, you will take your share of the profit.
Income
Directors are employed by the company and can therefore take a director’s salary and will be taxed on it under the PAYE scheme.
If the company has excess funds after paying the expenses and directors’ salaries it can declare dividends to shareholders. So in a small company scenario, where the limited company is managed by you (the director) and owned by you (the 100% shareholder), you will be entitled to take a salary as well as dividends declared by the limited company.
Accounts
Your accounts must be prepared in accordance with accounting standards.
You have to prepare annual accounts for your personal self assessment tax return. Your accounts are not submitted to HMRC unless there is an investigation.
Accounts
Your accounts must be prepared in accordance with accounting standards under the provisions of the Companies Act. Small companies can submit abbreviated accounts.
Every year a limited company must submit the following documents to companies house:
– Annual return
– Annual accounts
A limited company must also submit to HMRC:
– Annual accounts
– Corportion tax return
Administration
Broadly speaking, there is less administrative paperwork for sole traders and partnerships. However, you must weigh it out against the benefits offered by the status of a limited company for doing serious business.
Administration
The administration of a limited company is governed by the rules and regulations laid down by the registrar of companies.