What is the difference between sole trader and company?

As a small business entrepreneur, you have the option of creating different business structures for your new venture. Two of the most common options are Sole Trader and Company. So what are the biggest differences between these two legal structures?

As a Sole Trader, you are individually legally responsible for all aspects of the business. This has its upside, of course. It means that you are in full control of the business, without having to report to shareholders or a board of directors. As a Sole Trader, you can still hire other employees, but you are fully responsible for all decisions that are made. This means you are entitled to a full share of the profits when things are going well – but you are also “on the hook” if things don’t go well.

This is an important legal distinction to make. If you are an employee of a Company, then the Company bears full responsibility for all debts and legal actions. However, if you are a Sole Trader, then you have unlimited liability for all debts. This means that, from a legal perspective, your personal assets (savings account, home, pension) are viewed as being the same as your business assets.

That being said, the Sole Trader is the easiest and most affordable form of business structure to set up, which is why it’s so popular. If you are just starting out, this is probably the option that you will consider first. But just keep in mind the risks and rewards that are possible when you choose this structure.

 

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