Business formats explained: Should you register as a sole trader or a limited company?
Sole trader or limited company is the choice most first start-up
businesses face. If you are starting a business alone, the
structure you register your company under will essentially depend
on how much legal and financial responsibility you want to take for
the business if it runs into trouble. This guide will help you
understand the difference between operating as a sole trader (and
just registering your busines name) or setting yourself up as a
limited company.
- Sole trader
- Limited company
- Things to consider
Sole trader (Register your business name)
Setting up as a sole trader and simply registering your business
name is the easiest option if you are the only owner of the
business. By setting up as a sole trader, you maintain complete
control over the business, keeping all the profits after tax. The
law will not distinguish between yourself and your business,
meaning if the business runs into trouble, you will bear all the
legal and financial responsibility.
- Registering as a sole trader is the easiest option
- You keep all the profits after tax
- You bear all legal and financial responsibility
Limited company (Set up a company)
A limited company is a separate legal entity to its directors,
limiting how much the owner is liable if the business runs into
trouble. Setting up as a limited company could be more
tax-efficient: the profits belong to the company, rather than you,
so you are paid as an employee, as well as a shareholder if you
take that option, which allows you to take dividends as well.
Setting up a limited company is costlier and requires more
administration than registering as a sole trader, but in the long
term, it's less of a risk.
- A limited company is a separate legal entity to its
directors
- You are paid as an employee and can choose to take
dividends
- Setting up is costlier and more time-consuming but less of a
risk
Things to consider
Registering a company can be hard work, especially if you're
doing it for the first time, so you might want to consider engaging
the services or advice of someone with experience. If you're unsure
as to what format to choose, speak to a solicitor or accountant who
should be able to help, while a formation agent will help speed up
your registration. Alternatively, try an online registration
company which will be cheaper.
- If you're confused, speak to a solicitor or accountant
- A formation agent will speed up the process
- An online registration company will be cheaper
Smarta offers a company registration service powered by the
National Business Register. You can search for available
names then register a business name, or set up a company and/or
register a trademark with us. You will receive a professional
binder with all your official documents via post within 3 days and
there is a helpline that you can call if you have any
questions.
Go to our company registration tool here: Company registration tool
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