Sole Trader vs. Limited Company

Difference Between Sole Trader and Limited Company

A limited company and sole trader are two main types of businesses. If you are starting a business then you must choose a structure for your business because the structure of your business will have impact on your business as well as on the businesses you will deal with. Both these forms of business have different types of responsibilities and functions. This article is aimed to differentiate between the two and help you in choosing one of these structures.

Sole trader

It is the simplest form of business structure especially when you are initiating a business.  You simply have to get yourself registered as sole trader and keep submitting the tax returns on annual basis to continue working. Book keeping is easy and does not require audit. Some of the main features of this form of business structure are:

•      Business Owner is accountable for all company affairs.

  • As a business owner you need to pay off all your creditors from our personal assets in case of bankruptcy.
  • Business owner needs to pay for legal costs that may be incurred because of the business operations.
  • Business owner is owner of all the profits and has to bear losses all alone.
  • Sole trader has to keep a record of all the financial transactions so that he can assess the state of his business.
  • A business run by a sole trader survives only till he wants to. If he goes bankrupt or dies then the business comes to an end.

Now let us know something about a Limited company. Here is list of some of the main features of a limited company.

•      There is not just one person who is responsible for running a business. There are different people to take care of different aspects of the business.

•      Company is registered under a law and for a company to be a limited company there has to a minimum number of staff.

•      The capital for the business is raised by issuing shares of thee company in the market. If the shares are issued to the public then the company gets the stats of a public limited company.

•      Shareholders are liable only for the amount that they pay for buying the shares.

•      There are directors and other people to take care of the business and the business remains unaffected even if any of the directors leave the company or die.

Though there are so many differences between these two business structures, they are same in front of law.

 

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