Sole Trader vs LTD Company: Choosing the Right Option

Launching your own company comes with many head-scratching decisions; and perhaps the most confusing one is whether to label your new venture as a limited company, or to declare yourself as a sole trader.

Understanding the difference between the two can help you ensure you’re making the right footing in the early stages of your business development.

This article looks at being a sole trader vs a LTD company – and which is the best option for your organisation.

What is a Sole Trader?

Otherwise known as a sole proprietorship, a sole trader is an organisation run by one individual (who must declare his or herself as self-employed in the eyes of the law); and while this means said individual is entitled to all profits (after tax, of course), they are also expected to shoulder any losses.

As a sole trader, you will need to file your own tax return every year – or hire a company to do this for you, as well as adhere to several other expectations from HMRC.

What is a Limited (LTD) Company?

A ‘LTD’ (limited) company is considered “limited by guarantee” or “limited by shares”.

In other words, it is a business structure which is set up upon what’s known as a legally distinct body, meaning the organisation is fully separate from all persons who own it, and finances generated through the organisation are kept separate from personal finances. An LTD company can also have shares/shareholders.

Sole Trader vs LTD Company: What is the Difference?

As a new business owner, it is important to differentiate between a sole trader and a limited company, and which one your type of organisation fits into.

Being a limited company will typically entail more responsibilities (and paperwork), but in terms of financial security, it can be the safer bet. This is because, as an entity separate from one’s own personal finances, any catastrophic losses cannot have direct ramifications on items such as one’s homes, car, and other possessions – which would be the case if you opted to register yourself as a sole trader.

In short, as a limited company owner, you’re only responsible for any monies that you put into your company; your private finances are safeguarded. But your responsibilities are considerably higher.

Sole Trader vs LTD Company: Pros & Cons

Sole Trader



Minimal paperwork & upfront costs

All responsibility lands on you. Including debts.

You can start trading immediately

Lack of legal protection = less credibility

You have full control and autonomy over your business decisions

Less entitled to lending and other funding opportunities

Financial information is kept private

Your business name is not protected

You get to keep all of your profits

Higher levels of tax (regardless of profits made)

Limited Company



LTD companies are more credible in the eyes of suppliers, customers, and lenders

It is more complicated to set up an LTD company and admin and paperwork is considerably higher

You will not be held personally liable for any losses the business suffers

Limited privacy. Accounts and documents filed via Companies House can be viewed by anyone, as they are on public record.

LTD companies are more tax efficient

Lenders and investors trust LTD companies more than sole traders, which can open up funding opportunities

Sole Trader vs LTD Company: Choosing the Right Option

Because each option has its pros and cons, as outlined above, it can be difficult to decide which direction is the best one.

Ultimately, this decision comes down to your own personal situation. Generally speaking, setting up as a limited company is more complex, costly, and comes with a trail of paperwork and obligations to uphold.

A sole trader needn’t worry about having a business “nest egg”, as you can set-up as a sole trader without any direct financial obligations. It is also quick and easy to register as a sole trader, and you may be entitled to certain useful attributes, such as tax relief.

Really, the ultimate decision comes down to: can you manage your business on your own, or does it require a team?


Choosing which business structure to adopt depends on your situation and the nature of your business.

Starting out as a sole trader can be a safe and simple option for SMEs and other self-employed persons – and should the business see considerable growth, it is possible for your organisation to switch over to a limited company.

Other reasons to consider making the jump include being more tax efficient when your profits are rising, as well as taking on additional staff, and wanting to generate more exposure for your brand.

Need a Helping Hand?

Navigating finances as a new business can be daunting.

Whether you choose to register as a sole trader or a limited company, you will need to orchestrate a solid business plan, create a budget and cash flow forecast, and you may even require advice and training on accounting software.

The good news is, help is available to guide you every step of the way through these challenging tasks.

Need a helping hand?

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