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Are you just starting out in business and wondering what business structure to use? There’s lots of tricky questions which crop up when starting your own business and choosing the structure of your business can be difficult, it’s important you do your research to see which is the best fit for you.
Sole Trader and Limited Companies are the most common business structures. But which is best for your business?
The simplest structure is a Sole Trader. A Sole Trader is an individual who trades in their own right as self employed. They may be known as their name or have a ‘Trading as’ business name. A Sole Trader is personally responsible for the finances of the business and therefore personally liable for any debts incurred by the business.
A Limited Company is classed as a separate entity from its directors. The owner’s liability is only the investment they put in and they are not personally responsible for any debts which are owed by the business. If the business gets into financial trouble this won’t affect the personal finances of the owner’s.
Investments and Loans
You may find that as a Sole Trader it’s more difficult to raise finances for your business, whether that be loans or investments than it would be for a Limited Company. This is due to the reasons highlighted above. As it would suggest in the name a Limited Company has Limited liability protection if anything was to go wrong.
Responsibilities
A Limited Company has more legal responsibilities than a Sole Trader. For example Director’s Fiduciary Responsibilities. These are legal obligations you will have as the Director of a business, such as the responsibilities to your shareholders, employees and acting in the best interests of the business rather than for your own personal gain. You can get further information on this here.
As a Sole Trader you have much more personal responsibility. You are the only decision maker, your own boss, so you don’t have to wait for other people to make decisions, however it isn’t always easy working alone!
Costs & Visibility
When setting up as a Sole Trader there are no fees to pay to HMRC. You just need to make sure that you register for a UTR code before 5th October in your second tax year. Your company accounts will not be displayed for the public to see, so it’s a little more discreet than being a Limited Company.
If you choose to set up as a Limited Company there will be costs involved to register your business. When you register your business you will automatically be registered for Corporation Tax at the same time and you will need to file your first set of accounts 21 months after the date you register with Companies House. You will need an accountant to help you do this. If you are the only Director you will also need to register yourself for PAYE.
If you need any advice please book a discovery call. We would love to be part of your business journey!
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