Limited Company or Sole Trader?

In the UK, you typically choose between these two types of business formation and will often ask which is best?

This is one of the most regular questions I get asked and one of the biggest myths of starting a business.

The myth that there is one single right answer for you.

When really, the answers you get depend on who you are talking to.

For example, an accountant may focus on the tax implications of both.

Or a lawyer may focus on the liability and legal requirements of both.

As a strategist, I know both are important considerations, but need to be put into context.

For example - what do YOU want for your business?

What is most important for you?

I talk to business owners who have been advised to be limited companies, for example, but who get really stressed about the additional paperwork (and cost) of running it.

There are others who feel that they are not getting B2B opportunities because they are a sole trader and businesses can prefer to deal with limited liability companies more.

Everything is subjective and based on what you want to get out of your business and what operational overhead you are happy to take on.

Once you can answer that, then you can play out the various scenarios and see which formation fits best with your requirements.

Can't decide?

Then remember it is not a one-time decision.

You can change it if you find that your original choice isn't working for you.

The only implication of this is how much paperwork it can generate to switch around (typically it is easier to go from sole trader to limited company)

But it can be done.

Take your time, think about what is important to you in the perception of your business, your risk appetite, the financial implications, the amount of additional admin required - all of the aspects of running a business.

Look at them all together before deciding on your path.