Most of the startup faces the problem about what kind of legal structure they must adopt for their businesses. It is always advisable to search for the pros and cons of each system so that you are better able to choose your business structure. You must choose the kind according to your personality and preference.

This short article is designed for you to understand the pros and cons of two famous kinds of legal structures of business i.e. sole trader and Limited company.

Sole Trader

It is the simplest and easiest way to start a business and needless to say that this is the most popular kind of business structure in the UK. It is simplest because you don’t need to register your business with Companies House. In fact, you just need to inform HMRC (Her Majesty’s Revenue and Customs) that you are working as self-employed and you need to submit an annual tax return as well.

The biggest advantage is the tax rate. You and your business would be considered one in the eyes of law and you would not be forced to pay corporate rate tax that is usually greater than the individual rates. The biggest disadvantage is that if you bankrupt, your creditors can take your property in their claims.

Company

A company or a limited company in the UK refers to a business that is treated separately from its owners. It has its seal and has more than one owner normally referred to as shareholders. Each shareholder’s percentage of shares shows ownership in the company.

Its biggest advantage is that a company has limited liability. It means that your personal property would not be considered as the claim for debts and losses of the creditors. Another big advantage is that a company can get more capital by sharing the ownership of the company with others and that capital can be used in branding and expansion. Its biggest disadvantage is that shared ownership sometimes becomes a great problem for the business. Each shareholder has its motive and can disrupt the profit- making goal of the business.