CPD – Sole Trader or Limited Company, Which is the Best?

When you start a business, one of the first things you need to decide is the type of your business's legal structure. This structure determines how you own and run your business. Do you want to own the business by yourself, or do you want to share it with others? Well, the two common business legal structures are sole trader or limited company.

Choosing the right legal structure for a business is important. This is because it affects how your business works, how much tax you pay, and what risks you face. If you have chosen the right choice, it can bring you and your business a lot of success. However, if you have chosen wrong between sole trader or limited company, it may result in multiple setbacks and make it hard for you to run the business.

Sole Trader or Limited Company?

There are multiple legal business structures. Two of the most popular structures are Sole Trader or Limited Company. Moreover, these two legal structures are the direction in which you or your business partners will run your business. 

Understanding the differences, advantages, and drawbacks of each can help you make the best choice of how you want to own a business. Additionally, consider the pros and cons of each option between sole trader or limited company before deciding which one to choose.

Sole Trader

Being a sole trader means owning the business entirely by yourself. This business legal structure is simple as you solely have the decision and do not need the consideration or approval of other people. It might be good to hear, but it also has its downsides. This means that all of the benefits from the business are going to you, but the losses are also all on you. Below are the more detailed pros and cons of being a sole trader.

PROS:

• Full control over decisions and profits:
  As a sole trader, you own your business completely. This means you make all the decisions without needing to ask anyone else, like partners or shareholders. Moreover, you control how the business runs, the strategies you use, and what you do with the profits.
• Simple and quick to set up:
  Additionally, starting as a sole trader is easy. You only need to register with tax authorities, and there’s very little paperwork involved. When you compare a sole trader or limited company, setting up as a sole trader is faster and less complicated.
• Lower costs to get started:
  Lastly, being a sole trader is more affordable because you don’t have to pay for things like incorporation fees or accountants for complex reports. This makes it a good option if you’re starting with a small budget.

CONS:

• Personal assets are at risk if the business is in debt:
  Firstly, as a sole trader, your personal and business finances are the same. If your business can’t pay its debts, creditors can go after your personal belongings, like your savings, house, or other valuables. Now, this will put you at a big financial risk.
• Harder to get funding or attract investors:
  Moreover, sole traders usually rely on their own savings or small loans to fund their business. This means they can’t sell shares to raise money, which makes it tough to get investors or grow the business. Banks and lenders may also see sole traders as riskier, so between sole trader or limited company, getting loans for sole traders can be more challenging.
• Higher taxes as profits grow:
  Finally, sole traders pay income tax on their profits. As your earnings increase, you might move into higher tax brackets, which means paying more tax. Limited companies often pay less tax overall because they benefit from lower corporation tax rates.

Limited Company

A limited company is a business legal structure that involves multiple people owning a single business. To simplify, think of it as a group project. So, because of a group effort, the assets or responsibilities of the business are shared among the owners. Moreover, through this business structure, your personal finances are separated from your business finances, giving your finances more protection.  

PROS:

1. Personal assets are protected:
   Firstly, a limited company is separate from its owners. This means if the business gets into debt or faces legal problems, the owners are only responsible for what they invested. Your personal belongings, like your house or savings, are safe.
2. Lower taxes for higher profits:
   When deciding between a sole trader or limited company, limited companies pay corporation tax on profits, which usually have lower rates than the personal income tax rates that sole traders face. Additionally, owners can take profits as dividends, which may be taxed at a lower rate, depending on where you are.
3. Easier to get loans and attract investors:
   Lastly, limited companies can get funding by selling shares which makes them appealing to investors. Moreover, banks also see limited companies as more stable and professional, so it's easier to get loans and other financial help.

CONS:

1. More complex and costly setup process:
   First, registering a limited company involves legal requirements like incorporation fees, appointing directors, and creating statutory documents (e.g., Articles of Association). The administrative burden and professional fees make the setup and ongoing management more expensive than being a sole trader.
2. Increased regulatory and reporting requirements:
   Second, limited companies must file annual accounts, tax returns, and other compliance documents with regulatory authorities. These obligations require accurate record-keeping and often the services of accountants, increasing time and cost commitments. If comparing a sole trader or limited company, it is harder to file reporting requirements for limited companies.
3. Reduced privacy as financial information becomes public:
   Lastly, a limited company often files its accounts, shareholder details, and other financial information publicly. This means competitors, clients, or anyone else can access these details, reducing privacy compared to a sole trader setup.

Verdict: Sole Trader or Limited Company for Small Business

When choosing a structure for your small business, it's important to study the pros and cons of each. A sole trader structure may be perfect for someone who wants a simple and small business. On the other hand, a limited company could be for someone who wants long-term benefits, like a business that is passed down from one generation to another. Always weigh on what is the goal and how much you can endure to reach the said goal.

Moreover, you must consider everything when deciding between being a sole trader or a limited company. Ask yourself the long-run questions. These questions are like “How big do I want my business to become?”, “Am I able to overcome this by myself if risks happen?”. 

To help you ask the right questions and answer them, the College of Contract Management is offering the course CPD – Sole Trader or Limited Company, which is the best? This programme is made to help you decide what’s best fit for your goals and dreams.

Course Description

The CPD- Sole Trader of Limited company is about choosing the right business legal structure for your business. In this course, you will learn the legal obligations of both structures, the financial implications, tax considerations, and more. This course is specifically beneficial for entrepreneurs, those starting to or anyone who wants to have a deeper understanding of the difference between sole trader or limited company. 

Moreover, after this course, applicants will have the knowledge and confidence to decide what’s the best business structure for them in the long run. Whether it be a sole trader or limited company, this course will cover and answer all questions that should be considered in choosing between the two options.

Course Program

In this course, we will help you have a clearer understanding of whether you should choose a sole trader or limited company. The following modules will help you answer your long-term questions to consider for your business legal structure. Following the modules listed below will lead to learning the goal of choosing between sole trader or limited company. 

• Introduction to Business Structures
• Legal and Tax Responsibilities of a Sole Trader
• Advantages and Challenges of Limited Companies
• Funding Options: Debt for Sole Traders vs. Equity for Limited Companies
• Case Studies and Practical Scenarios
• Step-by-Step Guidance on Setting Up Your Chosen Structure

Entry Requirements

This course is open to everyone but will be most beneficial for people who want to learn more about business structures. This includes future entrepreneurs, small business owners, and professionals. Moreover, you don’t need experience or qualifications to enrol. After this course, the participants will be well knowledgeable and will be confident in choosing between sole trader or limited company.

Choose wisely with CCM

Choosing what business legal structure is hard. That is why here at the College of Contract Management, we offer the CPD – Sole Trader or Limited Company, which is the best?  course. To help you find what will fit your business. 

Always remember that big wins come from small decisions. Our decisions should also be carefully considered. So here in CCM, we will help you find the right considerations to make good decisions for your big wins! Take your journey with us as we help you decide what’s best to lead your business to success. 

The CPD - Sole Trader or Limited Company schedule will be shared once the lecturer has confirmed the time. Please note that tools and other materials will be provided during the live sessions. For any questions or enquiries, please contact our support team via email or live chat.