Yesterday we spent some time looking at the world of sole trading. For many start ups there is a great debate as to whether to start as a sole trader or as a limited company.
In fact there are far more sole traders than there are limited companies – there are only 1.15 million limited companies currently operating throughout the United Kingdom, a figure far less than half of sole traders which makes up around 2.8 million.
Many people are unable to tell the difference between sole traders and limited companies – today we will take a look at what the difference is between the two forms of businesses.
Finances – Unlike in a sole trader’s situation, both personal and business finances are kept separate under the limited company structure.
Corporation Tax - Corporation tax is something that limited companies must think about as they are legally bound to this tax on their profits. Sole traders on the other hand fall under the self assessment system.
VAT – As with sole traders, limited companies must register for VAT if they plan on turning over £68,000 per year.
Paperwork – Sole traders have quite an easy ride when it comes to administrative paperwork. Limited companies on the other hand have much more responsibility with such matters and thus must look after financial, administrative and legal paperwork for their business.
Shareholders – A limited company is owned not by one sole person but by a group of shareholders.
Limited Liability - For a sole trader if something goes wrong they are completely liable for any financial problems. In a limited company the directors and shareholders can have some peace of mind as they have a limited liability. This means their personal assets are seen as separate from the business and cannot be repossessed for example.
PLC – A Private Limited Company, unlike a Public Limited Company, is not allowed to sell its shares on the stock market.
Register – Registration with Companies House is a must for all limited companies in the United Kingdom.
Director – Limited companies no longer have to employ a company secretary and can legally do business with only a sole director on board. This rule was changed in April 2008.
Annual Return – Companies House must receive an Annual Return every year from limited companies in addition to their annual accounts.
Reasons For A Limited Company
Although there are fewer limited companies than sole traders in Britain, there are a number of positive associations with limited companies making them more and more popular for start up businesses.
Limited companies look more professional in the field and are also extremely useful when searching for funding and finance – limited companies are also more tax efficient than sole trader structures which is another popular reason for the route.
Have you decided upon a limited company or a sole trader route? What made you decide to go the way you did? Leave us a comment and let us know…
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