Sole Trader V Limited Company
What is a Sole Trader?
A sole trader is a business that is owned and controlled by one person. This is very attractive for those who wish to retain ownership of the business. A “sole trader” is described as a person trading under his / her own name, or a registered business name. Many sole traders decide to operate under their own name and do so without any problem. However, if you use a name other than your surname, you must register the name in accordance with the Registration of Business Names Act of 1963 for a small registration fee.
However, the sole trader is personally liable for all debts of the business, raising capital can be more difficult, and the life of the business depends entirely on the life of the owner – as it ends when the owner dies.
What is a Limited Company?
A limited company is a separate legal entity. The owners are shareholders and its directors make decisions on behalf of the company.
The company continues to trade irrespective of director or management changes until the company is wound up and dissolved.
As a separate entity it has sole responsibility for its debts. Its liabilities are limited to the paid-up share capital, therefore the company is said to have “limited liability”. There are a number of exceptions to this, where company debts become personal debts.
What are the Advantages of the Limited Liability Company?
Limited Liability: In general, shareholders are only liable to lose the share capital they subscribe to.
The personal assets of directors or shareholders cannot be seized to pay off company debts.
Low corporation tax of 12.5%.
Pension contributions can be made at the Company’s expense.
Raising finance can be less difficult.
There can be many owners of the business.
The registered Business Name of a sole trader is not protected against duplication, the name of a limited liability company is protected.