Advantages of a Sole Trader:
The sole trader is one of the most popular ways to start a new business in the UK, and it is especially popular among those starting their first business.
You are not required to incorporate your company at Companies House.
No registration fee is required.
- Setting up a company as a sole trader is comparatively inexpensive.
- There is a minimal requirement for bookkeeping, accounting and filling as sole traders can make their accounts.
Sole traders have complete ownership and control over their business.
Decisions can be made quickly and efficiently without the need for lengthy, group discussions.
The sole trader owns the entire net profit.
A sole trader's personal or business information will not be made public.
Please watch the video given below to get more details:
Disadvantages of a Sole Trader
- As there is no legal distinction between a sole trader's personal and business finances, they will have unlimited liability for all business debts and claims.
- The sole trader is fully responsible and accountable for all business-related decisions.
- Raising capital can be difficult.
- A sole trader's entire taxable income is subject to Income Tax and National Insurance.
- The credibility of sole traders may not be as reassuring to larger companies and lenders as incorporated business structures.
- Sole traders are perceived as smaller and less established.
- Sole traders are not as tax-efficient as limited companies.
- In a sole trader enterprise, it may be impossible to meet the criteria for statutory sick pay and maternity pay.
Many entrepreneurs prefer a limited company for its credibility and proper business organisation. The advantages of a limited company listed below may persuade you to choose this over a sole trader registration.
- Limited companies are separate legal entities from their owners.
- A limited company provides limited liability, which means that shareholders'/guarantors' finances/assets are protected over and above their investment/guarantee agreement with the company.
- Limited liabilities exude professionalism and credibility.
- It is always perceived as a larger and more established corporation.
- Limited companies are more appealing to a wider range of potential clients.
- Raising capital from lenders/investors is easier with a limited company.
- Scaling and growing a business is easier for limited companies.
- Even if the original company owners are no longer involved, a limited company can continue its operation.
- All taxable income is subject to corporation tax.
- Limited companies are more tax-efficient.
- Directors can pay themselves a salary plus dividends, which has far better tax implications.
- Shares can be exchanged for capital investment.
Also read: Requirements of a limited company UK
Disadvantages of a Limited Company
- Although company registration takes little time, a limited company must be incorporated at Companies House.
- It is necessary to register with HMRC for corporation tax purposes.
- Limited companies may be more expensive to establish.
- There are some restrictions when choosing a company name.
- If you are an undischarged bankrupt or a disqualified director, you cannot form a limited company.
- The registered office address must be in the same region of the United Kingdom where the company was registered.
- A service address is required for directors, subscribers, secretaries, and People with Significant Control (PSCs).
- Details of the registered office address, service addresses, directors, shareholders, PSC, filing history, and financial activity are all made public.
- Accounting and filing tasks are time-consuming in a limited company, so administrative tasks in a sole trader business are far easier. As a result, an accountant is required.