What's the difference between a company and a sole trader?

Let's take a look at the differences between having a company and operating as a sole trader. It's important that you can determine what business structure is the best option for you.

Choosing the right business structure is one of the first decisions you will need to make when starting out, but don’t worry, you can always adapt as your business evolves and grows.

What is a company?

A company is a means to separate yourself from your business. You become a shareholder, which gives you protection over your personal assets should your business fail.

There are some other advantages too, including tax benefits and looking more professional as well, and you have the flexibility of being able to bring people into the business in the future simply by selling them shares in the company.

What is a sole trader?

This is where you are trading through your own personal name and identity. You only need to declare your income through your personal tax return at the end of each financial year.

Although there are no complex legal processes to begin sole trading, this does mean you get no special legal status and you are liable for any debt that your business may get into.

Analysing the differences:

Companies are often established after an individual or a partnership have been in operation for a period of time. Once a business has overcome any teething issues and is in a growth period, one might consider setting up a company to bring their business into a new stage.

You are however, free to set up a company at any stage of business development, this is entirely your choice. Companies are considered by consumers to be more professional and trustworthy.

Although it costs more to establish and run a company, it has additional benefits over sole trading. As a company is a legal entity all on its own, individuals operating as shareholders are not personally responsible for any debt a business incurs.

Information provided on this website is of a general nature only and not legal advice. Please visit our disclaimer for further information.