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3 Reasons to Go from Sole Trader to Limited Company

Entrepreneurship, Tips for small businesses · 11/12/15 12:46 · Guest Blogger

The world of work is changing. More and more people are realising that working for themselves can be as easy as - and a lot more rewarding than - working for someone else. In fact, research from Millennial Branding shows that "owner" is now the fifth most popular job title among people under 30. 

If you decide to take the plunge and go it alone, one of the first things you need to do is let the government know how you plan to run your business. The 2 main options available are as a sole trader or as a limited company.

At first glance it may well seem that being a sole trader is the best option. It's quick, easy and hassle-free. But if you dig a little deeper and you may well find that being a limited company is the best way forward.

 

Sole Trader to Limited Company - Why Switch?

Sole traders are small and independent, limited companies are large, multinational corporations, right? Well no, not really. In fact not at all. A quick look at the stats will tell you that over 95% of companies in Britain are either micro or small businesses. Being a limited company has nothing to do with size.

It's a lot more about how you manage and structure your business. Which is why we've put together our top 3 reasons it may well be time to make the change.

 

1. Limit your liability, not your potential

Being a limited company means that you have limited liability for your business, and for how it performs. It acts as a buffer between your personal and business finances.

Of course, no one ever starts their own business thinking it will fail. But part of a successful business plan is preparing for every potential outcome. So if things do go a little off course, with a limited company you mitigate any future risks.

It's also not uncommon in the world of freelancing for clients to pass on responsibility for a project. So with a limited company you'll be protected if anyone makes a claim against you (especially useful if your business handles sensitive or risk based projects).

But it's not all about nightmare scenarios. If you've been going it alone for a while, and you see long-term potential, upgrading to a limited company will help you grow and develop...

 

2. Your road map to future success

Every day is an adventure when you run your own business. There's the ups, the downs, and then there's the plain unexpected. It's important to have a clear idea of where you're going and what you want to achieve.

Yes, it's a lot simpler to work as a sole trader. Yes, there's less paperwork. And yes, it's cheaper. All you really need to do is register with HMRC, file your tax returns once a year, and if your profits are under £10,600 then you pay no tax at all! But there's only so far you can go running your business like this.

As a limited company it's much easier to get access to grants and business loans. It also provides the necessary structure for things like hiring your first employee. As a limited company you can also switch from income tax to corporation tax, which is more beneficial in the long term. And don't forget about company image, which brings us nicely on to point number 3.

 

3. Credibility is crucial

As we touched on above, the world of work is changing. Freelancing is on the rise, and it's playing an increasingly important role in the UK economy. In 2013 alone the number of businesses hiring freelancers online increased 46%! That said, a lot of businesses will only work with limited companies. It adds an air of credibility and professionalism.

This is especially true in certain sectors, mainly the more traditional and established ones. Think of banking or defence, for example. As a limited company you have to be registered with Companies House, which means that certain company details are publicly available (eg. filing your accounts and annual turnover). This will boost your trust factor with any potential clients, as they can check your public reputation (you can also do the same for your own customers).

And it's not only company image, but your personal one too. Being the director of a limited company adds an air of credibility that simply working as a freelancer or contractor doesn't have (even if, after all, you're still doing exactly the same job!).

 

Your business, your decision

Hopefully this quick overview has provided some food for thought about the structure of your business. Switching to a limited company comes with more paperwork and admin, but it also unlocks more potential. In fact setting up a limited company costs as little as £16, and can be done in under 24 hours.

At the end of the day every business is different, as are the people running them. The ultimate decision about what to do, and when, is down to you. And whatever you opt for, you're still your own boss - which is great!

 

 

Join fellow entrepreneurs who already have a head start.

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