When you plan to open a business, you would need to consider a few variables. You need to consider the one significant difference between a limited liabilities company or sole trader when you think about which type of business or company to open. A Sole trader operates independently, and limited liability companies are a group of individuals who own a part of the company or own shares in the company. As the title would suggest, there is a sole responsibility for sole traders, but limited liability companies have limited responsibilities.
Being a business owner without any financial assistance from silent business partners or significant investors can be challenging. Still, there are many upsides to having a sole tradership, just like there are many pros and cons to opening a limited liabilities company.
Company vs Business
The very first difference that needs to be acknowledged between a company and a business is their titles. Companies are on a broader scale with more individuals and have more government regulations to adhere to. Certain forms need to be completed and registered at HMRC for your company to operate with more than one individual, where an individual can run a business out of a smaller space with limited registration responsibilities.
All forms have to be registered under a specific individual’s name, which affects the business’s space, tax, and administration if it is a sole tradership. Limited liability companies need to register the business’s information under the business’s name, and there is a particular time frame for when this all needs to complete.
Sole tradership
A sole tradership is when you are one individual, opening a business without anyone else’s assistance. The business is registered in your name as the business owner and can even be named after you. Sole traders fill in a self-assessment tax return.
As the business owner, you will need to do your administrative work by yourself, and hiring an accountant or tax practitioner to assist will be your sole responsibility. You do not have to register a name for your business. You can use your name and report all the taxes you have paid as personal tax income. There is no need for ample business space, and if you do take funds from someone else, you can do so privately and not include them in the actual administration of your business. Silent partners are ubiquitous for small businesses, especially when the business is service-related and the money goes towards the initial start-up of the business. As a business operating under a sole proprietorship, you do not need to declare your financial partners. You can use the invoices for your purchases and expenses as part of your tax returns to increase the amount of money you can get paid back from the HMRC. These expenses can include your phone bills, purchases for stock or raw materials, travel costs, internet bills, and other smaller fees that you incur while operating your business.
However, the biggest challenge to owning a sole proprietorship is that you are entirely responsible for the loss of revenue and any other business failure that might occur if your business does not make it. You will need to declare all your assets that you have purchased while you were operating your business. Any monies that you received as investment by small business grants or the bank can be returned to either cover the total cost or the interest. With this kind of business trade, you are not paying many overheads and have the full advantage of keeping all the profits you have earned to yourself once taxes and expenses have been paid.
Limited Liabilities Company
A Limited liabilities company is one of the most common forms of trading. It has the advantages of liability shielding but also has the tax-pass through the benefits of a partnership. There are so many freedoms when you decide to set up a company as a limited liabilities company or an LLC because you have shareholders or business partners to assist you with the business’s initial opening and to help you manage the company as a whole. An LLC is a business that operates as a company because there is more than one person whose name is on the registration forms at the HMRC. To get the name of the company registered, you would need to apply to the Company’s House at least six months ahead of time to get your character approved so you can list it on your documentation. Once the name has been registered, and the company shareholders and business partners are confirmed, you will file a 1065 form with the HMRC.
As a company, you can hire a specific financial team that will include accountants and tax practitioners to assist your administration and tax applications. Using an accountant’s services takes a load of partners who do not have a strong track record of doing these things. You can be guaranteed that all the work is filed on time, and they can also assist with making sure you declared everything to avoid any legal trouble with the HMRC.
The most important thing to acknowledge is that you won’t be held liable for any money other than what you and your partners have invested. You will be declared insolvent if the company forecloses. You will not be held legally liable to pay back anything other than what you put in, and your assets won’t go under forfeiture.
However, as an LLC, you have the power to sell shares, go public so that anyone can purchase your shares, and divide the shares of members who retire or become deceased. There is no limit to how many shares can be sold or purchased. Being an LLC also comes across as more professional for more prominent companies to trade with you because it gives them a sense of security of your company’s legitimacy.
