Sole Trader vs. Limited Company - What’s the difference?
Self-employment refers to an individual who works for themselves rather than being employed by a company or organisation. Self-employed individuals operate their own business or trade, providing goods or services to customers. They have more control over their work and are responsible for managing their business, including finances, marketing, and operations. A self-employed individual can choose to operate as a sole trader or as a limited company. However, each method has its differences, and individuals should understand these differences before deciding how to operate.
Let's break down the core ways in which they contrast;
Legal Identity
Sole Trader: You and your business are one and the same. You're personally responsible for all aspects, including debts and liabilities.
Limited Company: Your business has a separate legal identity. It's liable for its debts, shielding your personal assets in most cases.
Liability Protection
Sole Trader: You're responsible for any debts or legal issues, which could put your personal assets at risk.
Limited Company: Generally, your liability is limited to the value of your shares. Your personal assets are usually protected, promoting more security.
Tax Structure
Sole Trader: You're taxed as an individual, and your business profits are counted as part of your personal income.
Limited Company: The company pays its own taxes, often at a corporate rate. You, as a shareholder and director, may receive dividends, subject to different tax rates.
Ownership and Control
Sole Trader: You have full control over decision-making and operations.
Limited Company: Ownership is divided into shares, allowing multiple shareholders. Decision-making may involve shareholders' agreements and board resolutions.
Stonebridge are experts in all self-employment matters. If you have any self-employment related questions, please contact compliance@sbcontracting.co.uk, where we will be happy to assist.
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