Limited Company Vs. Sole Trader | Which is Better?

Thur, 13 April 2023

If you’re currently deciding whether to register as a limited company or sole trader, you’ve come to the right place.

Depending on the type of business you operate, the level of liability protection you require, your financial expectations and your personal goals, the right option for you may differ.

At SME Loans, we’re pleased to offer reliable limited company and sole trader loans, tailored to suit your business needs. To enquire about whether your company is eligible for a loan, or to discuss the benefits of becoming a limited company vs a sole trader, please get in touch. Call us on 01244 506279 and speak to one of our helpful advisors to find out more today.


What is a Limited Company?

Limited companies are typically created to conduct business and generate profits.

They have a separate legal identity from their owners, meaning they can sign contracts, own assets and sue or be sued in their own name. Because of this, if the company finds itself navigating financial difficulties, the shareholder’s personal assets will not be at risk.

What is a Sole Trader?

A sole trader is a type of business structure in which a business owner is responsible for every aspect of their company, including its profits and losses, debts and legal liabilities.

The individual is not required to form a separate legal entity, or even register the business with the government. Instead, they can operate the business under either their own name or a trading name. The sole trader has complete control over the business and is eligible to make decisions independently, without having to consult fellow owners or directors.

Limited Company Vs. Sole Trader

The major difference between a sole trader and a limited company is that a sole trader is controlled by a singular person who has complete liability for the business. In contrast, a limited company operates under its own legal identity, with its ownership split into equal shares. Both options come with a range of benefits that will appeal to different business types.

Benefits of Limited Company vs. Sole Trader

Limited Company

The benefits of registering as a limited company include:

  • Separate Legal Entity
    A limited company operates as a separate legal entity from its owners, providing greater protection and flexibility.
  • Easy Access to Finance
    Investors are more likely to fund a business that has a limited liability structure.
    Want to find out more about limited company loans? Please get in touch with a member of our team today.
  • Increased Credibility
    Registering as a limited company means your business can trade with a name that is followed by ‘Ltd’ or ‘Inc’. This increases the credibility of your company, ensuring you promote a professional image.
  • Limited Liability
    The biggest advantage of registering as a limited company is that the shareholders’ liability is limited to the amount of money they have invested. Therefore, should the company experience financial troubles, the shareholder’s personal assets will not be at risk.

Sole Trader

There are also a number of advantages that come with choosing to operate as a sole trader. These include:

  • Easy Set-Up
    Registering as a sole trader is an incredibly simple process, with few legal requirements.
  • Flexibility
    Being a sole trader comes with increased flexibility. You dictate your own schedule, choosing when and how much you work. This is particularly appealing to those looking to create a better work-life balance.
  • Save Money
    Sole traders often find it easier to keep overhead costs low, with no need to pay for additional staff or office space.

Pros & Cons of a Limited Company vs. Sole Trader | Which Should I Choose?

The choice between registering as a limited company or sole trader will ultimately depend on a multitude of factors, from your personal circumstances to your future plans for business growth and development. Some key factors to consider before deciding on the right option for you include:

  • Plans For Growth
    If you plan to expand your brand in the future, registering as a limited company may be the best option for you. Able to provide greater access to funding and investment opportunities, operating as a limited company will ensure your business can reach its maximum potential.
  • Potential Costs
    Registering as a limited company can be a costly process compared to setting up as a sole trader. If you’re looking for a straightforward, cost-effective way to start a business, registering as a sole trader could be a better option for you.
  • Liability Concerns
    If the idea of being solely liable for your business debts and financial obligations doesn’t sound like something you’d be capable of doing, registering as a limited company could be a more suitable option to suit your needs.

However, if you feel comfortable taking on personal liability for your business and want to cut outgoing costs, operating as a sole trader could work well for you.

How Can We Help?

At SME Loans, we’re pleased to provide trusted, alternative business funding for both limited companies and sole traders.

Looking to upscale your business capabilities? Get in touch today.

Call us on 01244 506279 to find out more about the benefits of becoming a limited company vs. sole trader, along with how to apply for unsecured business finance today.

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