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Limited Company or Sole Trader?

When you decide to start a business there are lots of decisions to make. Some are considered before starting up; such as your business name and how you will market yourself. One of the most important decisions which many over look is how to structure your business.

The two of the most common structures are; a limited company or registering as self employed sole trader. Businesses can operate through whichever system that suits them the best. Below is a breakdown of both.

Limited Company

A limited company is one of the most popular ways to operate because it is the most tax efficient way to trade and minimises the risk to the directors.

A limited company constitutes an entirely separate entity to the owners, even if there is only one shareholder who may be the only director too. Any assets or funds are owned by the company which are withdrawn as dividends to the shareholders or salaries to any employees.

Limited liability is another reason that many people choose to operate through their own company, as this means that in most cases, they are not personally responsible for any debts or liabilities incurred by the company.

Trading as a limited company is recommended by most tax experts and with the help, advice and support of an experienced accountant; the process can be simple, straightforward and easier than you may think.

Sole Trader

For many, operating as a sole trader is the natural way to begin working for them. It is a popular way of working amongst traders such as plumbers, builders and taxi drivers who choose to work for themselves.

If you work as a sole trader there is no legal distinction between your personal finances and those of your business. This means that any personal assets you might have will be considered if you are pursued for liabilities you may have on behalf of your business, such as loans or other debts.

For some people, it makes sense to operate as a sole trader, particularly if they have minimal business expenses and are unlikely to lose out on tax savings by deciding not to incorporate.

How can RAY help?

Whether you are just starting out and want advice on how best to establish yourself, or you have built up your business and are thinking to incorporate, we can help. Call us today on +44 (0)2079 932 792 / +44 (0)1908 385 409 or email us at info@rayaccountants.co.uk.