Many of us think about it, sometimes it is our dream to set it up, but not everyone decides to take a step to do it.
The own company about which we are talking might be the source of pride, happiness, and even a large amount of money. Nevertheless, running a company brings many obligations and difficult decisions. One of these can be the business’s form choice, which mostly is between being a sole trader or a limited company. The question is, what are their features, and which would be a better option.
Ease of launching and conducting a business
In the UK, as in many different countries, launching a business as a sole trader requires the smallest amount of work. It can be established by us online or by a call to HMRC without any payment. A sole trader is the most common form of employment in the UK, counted on 4 million subjects. Because being a sole trader is nothing but employing yourself on your own, it is an accurate option for all types of craftsman, graphic designers, translators, journalists, freelancers, etc. Despite this, many sole traders hire workers responsible for executed orders, administration, or even management.
Within the scope of easiness of launching and conducting a business as a sole trader, it’s worth also focusing on another aspect as a bank account or bookkeeping. The annual settlements are possible to make personally, without using the accountancy office. A sole trader in the UK doesn’t need to create a company bank account because the private one can also be used for business. Using the same bank account is possible because a sole trader and company are treated as a unity. However, it takes a risk because, as sole traders, we are also responsible for all the debts and the company’s commitments. That kind of employment is perceived by counterparties (especially the bigger ones) and all sorts of institutions (including the financial ones, e.g., bank) as unsteady. Consequently, it is more engaging to secure the contract or gain additional funding for development.
An independent entity and greater security
A limited company (LTD) has an absolutely different specification. In some ways, we can describe LTD basing on contradictions to the sole trader. First of all, LTD has its own legal liability, which means that its commitments and debts will not seize the owner’s private property.
Besides, the owner’s bank account stays safe because an LTD must have a separate bank account. Funding mentioned kind of business is more challenging, and it requires a larger amount of information, including defining the functions at the company, e.g., shareholders or directors. It can be done in the Companies House via form or online.
The cost of registration, which is around ₤20-30, depends on its form. It can be a paper or electronic version with the normal or expedited procedure.
The core costs and the basis of running a company
The settlements are also more complicated, and people should serve them with adequate qualifications and licenses. We have to be aware of the cost levels, which are definitely higher than the registration costs. It is determined by several elements, such as the number of invoices that have to be charged or the turnover. The price demarcation can be varied between ₤800 and a few thousand a year when the LTD is well-prospering.
The report should be sent to the HMRC and Companies House. Access to the company’s financial results is a generally available feat by ₤20-30 payment. In that way, counterparties and institutions are able to get to know the company’s financial condition, and they can assess the company’s reliability before deciding about co-operation. It is worth remembering that LTD’s independent entity is connected with a separate bank account. When we register the company, we will also receive a number of the certificate necessary during the creation of the company’s bank account. Another duty of conducting LTD is a record-keeping of strategic decisions. The management takes these decisions, which have to be written as a protocol.
The question is… what to choose – LTD or Sole Trader?
If we focus only on the easiness of conducting and servicing, then the sole trader is an unrivaled better option. It brings lower costs and fewer formalities. Although, if something is easy, it often has got a lower value on the market. And there is no difference in this case. For banks and large companies, a sole trader is not well-appreciated because everything depends on one person – its owner. The sole trader and his company are a unity, which means that the company does not exist in case of the sole trader’s death. This is the reason why it takes a huge risk.
A completely different situation has got LTD, which exists as a separate entity. It has its own legal personality, capital, and shareholders, which can be changed. It offers greater stability of functioning, so a better position for the negotiations. Additionally, it provides more opportunities for development, but the form carries more bureaucracy and costs.
Self Employed vs Limited Company – Parting Words
Both of the forms of the job has its values and defects. Before making a decision, it is important to think about the future of our activity. A sole trader form may be sufficient for activities carried out personally, even on the global scale. Nonetheless, when we focus on progress, many departments with many workers, we should consider choosing LTD.