Sole trader or limited company is the first choice most 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 business name) or setting yourself up as a limited company.
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.
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 more costly and requires more administration than registering as a sole trader, but in the long term, it's less of a risk.
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.
Smarta Formations is the quickest and easiest way for you to register your limited company. Find out if your company name is available using our name checker below, and then set up your company from as little as £9.99.