Lesson 1
Comparing Business Structures
Understand the legal and liability differences between sole traders and limited companies.
Know your liability
Choosing between a sole trader and a limited company is about risk management. As a sole trader, you and the business are legally the same. If the business is sued or fails to pay a debt, your personal assets—like your home or car—are at risk.
Making the choice
A limited company is a separate legal entity. If the business goes into debt, you are generally not personally liable beyond your investment. However, this comes with more paperwork and higher accounting costs. If you are starting a high-risk venture, such as a consultancy with significant contracts or a product business, a company is safer. If you are doing simple freelance work with minimal risk, a sole trader structure keeps things simple and keeps your costs low. Do not pick a structure just for the name; pick it based on your asset exposure.