Which is better: sole trader or limited company?


This is the most crucial question when forming a company: “Should I register as a sole trader or a limited company?” Your company registration should reflect your business needs in regard to:

  • predicted business strategies and company income
  • tax impact
  • Company industry/market, customers/clients, independent accounting/bookkeeping demands

Use fintech legal advice to consult and decide what’s best for you. In the meantime, let’s recognize the key differences between these forms of business.

Photo by Markus Spiske on Unsplash

A sole trader is…

If your firm is just starting out, knowing what a sole trader is will help you answer the question of how to register a sole trader:

The easy answer to how to create a company as a sole trader is to register with HMRC, but more on that later!

Whether they work alone or with others, sole traders are responsible for their firm and its liabilities.

Sole traders have no legal distinction between themselves and their businesses. Note that you must register for Self Assessment, complete the annual tax return, and pay Income Tax and National Insurance on all taxable income.

What are sole traders’ benefits?

Solo trader registration is a popular way to start a business in the UK, especially for first-timers. Why is being a sole trader appealing?

  1. Company incorporation at Companies House is unnecessary.
  2. Registration is free.
  3. Sole traders can start businesses cheaply.
  4. Since sole-traders can do their own accounting, bookkeeping, and filing are minimal (lowering accounting costs).
  5. Business ownership and control are complete for sole traders.
  6. Efficiency can be achieved without lengthy, collaborative decisions.
  7. The solitary trader keeps all net profit.
  8. Personal and commercial information about a solo trader is not public.

A limited company is…

Limited companies are registered at Companies House. A limited corporation is a legal entity separate from its owners and responsible for its finances and debts, unlike a lone trader. This is called “limited liability” and reduces owners’ financial accountability for company obligations.

Many limited corporations are held by shareholders, while others are owned by guarantors. Nonprofits without trading earnings prefer guarantee limits.

Directors run limited companies. These directors need not be owners. Limited corporations must pay corporation tax on their taxable profits, submit annual tax returns, and comply with statutory filing and reporting obligations.

Although limited companies entail more administrative work, many business owners prefer to start Estonia company formation under LLC for tax efficiency.

What Are Limited Company Benefits?

Many entrepreneurs choose limited companies and “proper” business organizations for their reputation. You may prefer a limited company over a sole trader registration due to these “advantages of a limited company”.

  1. Limited companies are legally distinct from their owners.
  2. A limited company protects shareholders’ personal finances/assets beyond their investment/guarantee to the company.
  3. Limited liabilities convey professionalism and credibility.
  4. A limited firm controlled by one person is always seen as a larger, more established corporation.
  5. Limited firms attract more customers.
  6. Limited companies make it easier to raise funds from lenders/investors.
  7. Company formation makes scaling and expanding easier.
  8. A limited business can survive without its original owners.
  9. Corporations pay tax on all taxable income.
  10. Limited firms save taxes.
  11. Directors might pay themselves salaries and dividends for favorable tax consequences.
  12. Sell shares for capital investment.


How do you register a single trader or limited company? You can switch from a single trader to a limited company in a couple of hours with Fintech Harbor Consulting! 

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