Differences between being a sole trader, and setting up company

June 4, 2012 · Posted in Business 

Deciding to work for yourself is a big step. It’s exciting, and scary. There are advantages and risks and it’s often hard to know what direction to go in. The first big decision you have to make involved deciding just how you are going to define your business in terms of the law. Each option has its advantages, but also its disadvantages.

What many people do when they are first starting out is register as a sole trader. They become essentially self-employed. It means that after filling yearly taxes, they keep all the profits for themselves, and they remain in complete control of the business and everything involved. There is not much involved in setting up as a sole trader, and it is seen as the easiest way to start.

The second option is to set up a company. This often freaks people out. Setting up a company? Already? Isn’t that a bit far-fetched when I Just want to work from home? It may be. It costs to set up, and it’s more cumbersome when it comes to taxes, even though you may save money. However setting up a company has a lot of advantages over simply being a sole trader, especially if you plan to grow and expand, or potentially have a lot at stake.

If you are a sole trader and your business runs into trouble, then you are completely liable for any debts incurred. You could easily lose your house and all your assets. Where if you set up a limited company, you are much more protected.

It is actually much more simple to set up a company than people would think. It is often something that can be done online for a token cost, and it can all go through in a matter of hours. Many people who decide to become self-employed go this route as just taking an added measure of security. It is not as simple as being simply self-employed, but it may be worth it in the long run.

Lisa Webb is a widely respected writer who has been writing for 5 over years often writes on Limited Company Formations Online and a wide range of other subjects.

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