If you are looking to be one of the half a million people expected to start a new business this year you need to know the difference between a sole trader and a limited company.

The main difference between a sole trader and a limited company is that as an individual trading on your own you ARE the business. This means that you are personally liable for your business activities. A limited company has its own legal personality and its liabilities are limited. So, if you run your business through a limited liability company, you shouldn’t have any personal liability for the company’s business activities. 

If there is only me, do I need to have a limited company?

Farringford Legal are often asked this question. Our recommendation is always to operate through a limited company. Robust effective governance arrangements are critical to the success of any organisation. The absence of such arrangements creates the prospect of significant, unmanaged and unmanageable risk – and potential failure.

Of the 5.5 million private sector businesses in the UK in 2021 there were two million actively trading limited companies in the UK. Just over half of these limited companies employed at least one other person, with the remaining being one-man bands. There were 3.2 million people operating as sole traders/sole proprietors, otherwise known as being self-employed.

If you choose to go it alone for a career, becoming a sole trader seems like a good option as it is quick, easy and doesn’t cost anything. Whilst this seems to be advantageous, it’s not likely to be the best long-term option.

Our tables shows a an overview of the main points of difference between sole trader and limited company.

Setting up and structuring your business – the differences

Governance and when things go wrong – the differences

Growth potential – the differences

Financials and accounting – the differences

Farringford Legal’s setting up a limited company service

If you are looking at setting up a limited company or starting a new business the highly experienced team at Farringford Legal can help.

Don’t be tempted to go-it alone with a low-cost company formation service. Setting up a company is a beginning not an end. Creating a new legal entity and then not benefiting from an understanding of how to use the structure to enhance your business is like piling all of your assets into a leaky boat and wondering why it sinks taking your assets with it.

Farringford Legal is committed to ensuring that the solutions it provides work in practice. That’s why our formation package is a very different one which doesn’t stop at the formation but gives you the information you need for a successful business journey – and we are always on hand for further specific advice if something new crops up.

Of course, if you have already set up a limited company on a low-cost basis, no need to worry as we’re still on hand to provide that advice and assistance to help you succeed in its operation.