Should I Set Up My Business As A Limited Company Or As A Sole Trader...

Setting up a business in the UK requires a crucial decision regarding its legal structure. One of the most common questions is whether to set up as a limited company or as a sole trader. Each structure evidently has its advantages and drawbacks, which must be carefully considered to ensure a suitable choice is made.

No matter what type of business you are, our dedicated Company Secretarial division will work with you to determine the best company structure for your business. Should it be decided you decide to register as a limited company, we’ll take care of the hard graft. We’ll carefully sort out any share issues, file annual Confirmation Statements and Annual Statutory Accounts with the Registrar of Companies & HMRC, as well as update statutory records. If this sounds of interest then please get in touch with our Company Secreterial Manager, Natalija Rynkevic, and she can discuss with you your options.

For now, we’ll delve into the pros and cons of establishing a limited company or operating as a sole trade, along with key factors that should be considered when making the decision…

What Are The Advantages Of Setting Up As A Limited Company?

Limited Liability

One of the primary benefits of forming a limited company is limited liability protection. As a separate legal entity, the company’s debts and liabilities are typically separate from the personal finances of its owners or shareholders. This allows for more freedom and a fluid approach, separating personal life from professional life.

Tax Efficiency

Limited companies can potentially benefit from more tax-efficient strategies compared to sole traders. They can deduct a wider range of business expenses, claim capital allowances, and potentially access favourable corporation tax rates.

Credibility and Perpetual Existence

Operating as a limited company often enhances credibility in the eyes of suppliers, clients, and financial institutions. Additionally, a company’s existence is independent of its directors and shareholders, enabling easier succession planning and potential longevity.

What Are The Disadvantages of Setting Up As A Limited Company?

Regulatory Compliance and Administration

Limited companies are subject to greater regulatory and administrative requirements. This includes the preparation of annual financial statements and filing of corporate tax returns. It also requires maintaining company records, which may necessitate professional assistance.

Higher Costs

Establishing and operating a limited company generally incurs higher costs compared to sole trader structures. These costs include registration fees, accounting fees, and potential higher insurance premiums essential in protecting your business.

Loss of Privacy

Unlike sole traders, limited companies are required to disclose certain information publicly, including financial statements and details of directors and shareholders. This loss of privacy may be a concern for some business owners.

What Are The Advantages Of Setting Up As A Sole Trader?

Simplicity & Control

Setting up as a sole trader offers simplicity and minimal administrative burden. There are fewer legal requirements, making it easier and less costly to start and manage the business independently.


Sole traders have complete control over their business decisions, allowing for quick adaptation to changing market conditions and customer demands. This flexibility can facilitate faster decision-making and agility.


Sole traders have more privacy compared to limited companies as they are not required to disclose financial statements or share ownership details publicly.

What Are The Disadvantages Of Setting Up As A Sole Trader?

Unlimited Personal Liability

The main drawback of operating as a sole trader is unlimited personal liability. The business owner’s personal assets are not protected, and they can be held personally responsible for business debts or legal actions.

Limited Funding Options

Sole traders may find it challenging to access certain types of funding, such as bank loans or investment capital. Limited personal liability in a company structure may offer more appeal to potential investors likewise.

Tax Implications

While sole traders benefit from simpler tax reporting, they may face higher personal tax rates as business profits are taxed as part of their personal income.

What Factors Need To Be Considered When Choosing Setting Up As A Limited Company Or Sole Trader?


It’s important to evaluate the level of personal liability protection required based on the nature of the business and associated risks. How far detached do you want your personal and professional life to be? Do I want my personal finances relying heavily on my business? These are all questions which need to be carefully approached.

Tax Considerations

Assess the potential tax advantages or disadvantages of each structure, taking into account individual circumstances and long-term growth plans. Of course, we can seamlessly do this for you at Nordens with our dedicated Tax department. We’ll weigh up and gage all of the tax implications and percussions so you can make an informed decision backed up by knowledge and expert guidance.

Administrative Requirements

Consider the administrative burden and associated costs of each structure, including compliance with legal and regulatory obligations.

Business Growth and Investment

Determine whether there is a need for external investment or funding options, as well as the impact of different structures on credibility and growth prospects.

Flexibility and Control

Consider the level of control and flexibility desired in managing the business, as well as the ability to adapt to changing circumstances and decision-making processes.

Choosing between operating as a limited company or as a sole trader is a critical decision for UK businesses. The choice depends on a variety of factors, including liability protection, tax considerations, administrative requirements, growth aspirations, and desired levels of control. Through carefully considering the pros and cons outlined and factors which make up the decision-making process, you can make an informed decision that aligns with your goals to achieve long-term success.

We hope this has outlined to you the pros, cons, and things to consider when deciding how to set up your business structurally. If you’d like to know any further information on anything mentioned, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.