4 Differences Between being Self Employed or a Limited Company

There are 4 main differences between being self employed and a limited company.

New business have to decide between being self employed or a limited company. This decision impacts on the way the business is run and how people react to the business.

limited company


There is a huge legal difference between being self employed or a limited company. Shares are actually created in a limited company and directors are appointed. This makes it easier to change directors, by selling shares, than changing the structure of a sole trading business or partnership

Also a director’s liability is restricted by the amount of the shareholding. This means that if a business fails then the director is unlikely to lose the house and can easily walk away !. Sole traders tend to put everything at stake when they start a business.

A limited company is registered at Companies House meaning that it’s accounts and services are able to be seen by anyone including competitors. A sole trader has more privacy.


Setting up a sole trading business is cheap and quick. There is no need for an accountant as all income is recorded on an annual tax assessment. However all income from sole trading is taxable whereas a limited company pays its shareholders dividends and these do not require national insurance to be paid, and the tax rate is lower.

Cost is a key difference between self employed and limited company. A limited company has to pay for all registrations. Accountancy costs are vastly higher and there are costs with all aspects of dealing with companies house

A limited company however can invest in a company pension using company funds which is a far cheaper option than a self employed sole trader has.

Trading Flexibility

Sole traders have little flexibility to change their structure once they launch. A limited company can amend shareholdings easily. Directors can be paid off our new investment can be introduced.

However a sole trader can start work immediately. As long as they inform HMRC within 3 months they require no registration or government check. They do not even need to register their name or copyright services


Another key difference between self employed and limited company is how the company wants to be viewed by investors, customers and banks?

Many large companies will only deal with limited companies, as they tend to be run more professionally and, from an investors perspective, are less risky than dealing with a sole trader.

Banks for instance will lend better terms to limited companies as they are able to create a floating charge on the business and this gives them control of the business assets if a business fails. Sole traders tend to be individuals, with small asset value, so are considered to be a higher risk.

It is easier for stakeholding companies, such as banks, insurers, regulators to do business with limited companies as they can verify the company value easier than with a sole trader as due to the myriad of annual returns and accounting information, the value is very transparent. Often with sole traders the true company value is a mystery.

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