Businesses have different nature. People select the type that suits their requirements. Whether you have decided to work as a sole trader or limited company, you need to follow the basic guidelines provided by the government. However, there is a huge difference between every type of business. As far as a sole trader or limited company is concerned the major differences are explained below:
- Ownership: In a sole trading business, you are the owner. The business belongs to the person who has created it but in the limited company, the owner will act as a shareholder i.e. they can have a share of the company’s capital.
- Handling legal disputes: In the case of any legal dispute, the owner will be the one who will be sued for the issues until and unless they will be able to provide the suitable assurance that they were not involved. On the other hand, in the limited company, the whole company will be sued for the issue. It is a rare thing that the director will personally help responsible for the disputes.
- Employment status: As far as the employment status is concerned, in the sole trading business, the owner is self-employed that is they can’t be their own employees. In a limited company. The director is the person who is the office holder which makes them an employee of the organisation according to the employment law.
- Taxes and profits: The next major difference between a sole trader or limited company is different in the payment of taxes and getting profits. As a sole trader, people have to pay for the class 2 and 4 national insurance and income tax. Moreover, the person will be able to share the tax if there is a partner of the company. The company has to pay for the corporation tax if it is a limited company and they also have to pay the tax on the profits. The shareholders are subjected to pay the tax.
- Losses: No business survive without any kind of losses. In the case of a sole trader, the loss has to be paid or managed from the personal income. On the other hand, within a limited company, the loss will be managed with the help of other incomes generations. It will not be managed with the individual payment.
- Borrowing of money: As a sole trader, the owner is free to borrow the required money from the business bank account. However, in a limited company, there is a specific procedure that should be followed. The procedure will be initiated with the permission from the directors.
- Pension schemes: A sole trader can have a personal pension but the limited company has to properly manage a scheme for the employees with the help of which they will be able to get their pension.
The difference between a sole trader or limited company is clearly identified with the above-mentioned information.