What Is the Difference Between a Limited Company and a Sole Trader?

Are you thinking of starting a business but don’t know where to begin? One of the first decisions you’ll need to make is what kind of business structure you want to have. The two most common structures are a limited company and a sole trader.
In this blog, we’ll explain the key differences between the two structures, their advantages and disadvantages, and help you decide which one is right for you.

What Is the Difference Between a Limited Company and a Sole Trader?


A limited company is a separate legal entity from its owners. It has its own assets and liabilities, and is responsible for paying its own taxes. Shareholders own the company and are only liable for the amount of money they have invested.
On the other hand, a sole trader is an individual who runs a business on their own. They are personally responsible for the business and its liabilities.

Legal Status

A limited company is considered a separate legal entity, which means it can enter into contracts and sue or be sued in its own name. As a result, it offers more protection for its owners, who are not personally liable for the company’s debts or legal issues.
A sole trader, on the other hand, is not considered a separate legal entity. The business and its owner are considered the same entity, which means the owner is personally liable for any debts or legal issues that arise.


Limited companies pay corporation tax on their profits, which is currently set at 19%. Shareholders can also take out dividends from the company’s profits, which are subject to income tax.
Sole traders, on the other hand, are taxed on their profits as part of their personal income tax. This means they are subject to higher tax rates than limited companies.

Ownership and Control

A limited company is owned by its shareholders, who have the power to appoint directors and make decisions about the company’s operations. The directors are responsible for running the company and making decisions on behalf of the shareholders.
A sole trader, on the other hand, has complete control over their business. They make all the decisions and are solely responsible for the success or failure of the business.

Advantages and Disadvantages of Limited Companies vs Sole Traders

Limited Company


  • Offers more protection for shareholders
  • Separate legal entity
  • Easier to raise capital
  • Can be more tax efficient
  • Perceived as more credible and established


  • More complex and expensive to set up and run
  • More regulations and compliance requirements
  • Less control over the business
  • Less privacy, as the company’s financial information is publicly available

Sole Trader


  • Easy and inexpensive to set up and run
  • Complete control over the business
  • Less regulations and compliance requirements
  • More privacy, as the business’s financial information is not publicly available


  • Unlimited liability
  • Difficult to raise capital
  • Perceived as less credible and established

Deciding between a limited company and a sole trader structure is an important decision for any business owner. Both structures have their advantages and disadvantages, and it’s important to weigh up the pros and cons before making a decision.
Ultimately, the choice will depend on your personal circumstances and goals. If you’re unsure which structure is right for you, it’s worth seeking professional advice from an accountant or business advisor. With the right structure in place, you can set your business up for success and achieve your goals.

Should I Hire A Limited Company Accountant?

Our specialist team of expert and highly qualified limited company accountants are here to deliver everything you need to set up, operate and grow your business.
Operating your own limited company is highly rewarding, but it can also be financially beneficial to undertake. However, amongst managing clients, staffing, organising premises and developing your service offering you will also have to deal with the daunting and difficult task of managing your company’s finances.
Make running your business easier with MJ Kane & Co Accountants. Learn more about our Limited Company Accountants Service.

Company Accounts FAQs

1. Can a sole trader become a limited company?

Yes, a sole trader can choose to become a limited company at any time. This can be a good option if the business has grown and the owner wants to limit their personal liability or take advantage of the tax benefits of a limited company.

2. Can a limited company operate as a sole trader?

Yes, a limited company can operate as a sole trader if the owner wants to run a business without the legal and administrative requirements of a limited company. However, the owner will be personally liable for any debts or legal issues that arise.

3. Which business structure is best for me?

The best business structure for you will depend on your individual circumstances and goals. If you want more protection for your personal assets and are willing to take on the additional legal and administrative requirements, a limited company may be the best option. If you want to keep things simple and have complete control over your business, a sole trader structure may be better suited to your needs.

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