smallbusiness.co.uk: Helping your business think big

There are no hard and fast benchmarks for when to make the shift from sole trader to limited company status and every situation is different. You must look at and consider what either option would bring to your business.

Being a sole trader is the simplest way to run a one-person business, you make all of the decisions and of course you get to keep all of the profits. If you are at a stage where operating as a sole trader is working for you then retaining that legal status may be advisable. However, as a sole trader you are personally responsible for any debts run up by your business, which could mean that your home or other assets are at risk. Upgrading your business status to that of a limited company will mean increased legal, financial and administrative implications.

However, if you want to expand, a limited company status offers protection of your assets should you get into financial trouble - your liability is limited to the cost of the shares. Trading as a limited company offers other advantages such as easier securing of funding from your bank, or issuing shares to raise finance. In addition, your business finances are clearly separated from your personal finances and it is often thought of as more prestigious by customers or suppliers.

Business Link for London has produced a fact sheet covering the various types of business structures, including the pros and cons of each:
http://www.businesslink4london.com/formingabusiness

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