Limited Company vs.Sole Trader or Partnership

Are you thinking of operating as a limited company against partnership or the vice versa? Choosing the option depends on a lot of factors like your investment, revenue, taxes, etc. and mainly on what your needs are. Opting the wrong option could impact your business negatively.

Limited Company vs. Sole Trader/Partnership

Here are some basic differences listed between Limited Company and Sole Trader/Partnership:

Company	Sole Trader/Partnership
A company must be formally incorporated with a written constitution in the form of a Memorandum and Articles of Incorporation. There is, therefore, an initial setup cost.	There are no formation costs, but a written partnership agreement is advised.
Companies are governed by the Companies Acts. A company must:- - Keep accounting records - Produce audited accounts (if turnover > £6.5m) - File accounts and an Annual Return with the Registrar of Companies. This information is available to the public. - Keep Statutory Books	Sole traders and partnerships are not required by law to have annual accounts nor to file accounts for inspection. However, annual accounts are necessary for the Inland Revenue tax returns.
Companies may have greater borrowing potential. They can use current assets as security by creating a floating charge.	Sole traders and partners are unrestricted in the amount and purpose of borrowings but cannot create floating charges.
Incorporation does not guarantee reliability or respectability but gives the impression of a soundly based organisation. Personally, there may be prestige attached to directorship.	The unincorporated business does not carry the same prestige.
Tax is payable on directors’ remuneration paid via PAYE on the 19th of the following month. If applicable, higher rate tax is paid by shareholders on dividends under the self-assessment rules. Corporation tax is payable 9 months after the year-end.	For a sole trader or partnership, tax is generally paid by instalments on the 31 January in the tax year and the 31 July following the tax year. For an ongoing business tax for 2012/13 is payable:- first payment on account on 31 January 2013, second payment on account on 31 July 2013, with any final balance due on 31 January 2014. For a start-up business this is slightly different and covered in more detail later in this publication.
First year losses in a company can only be carried forward to set against future profits.	Losses generated by a sole trader or a partner can be set against other income of the year or carried back to prior years.
For profits up to £300,000 tax is charged at 20% (2013/14)	Profits are taxed at 40% on taxable income in excess of £32,010 and at 45% over £150,000 (2013/14)
There is both employers’ and employees’ national insurance payable on directors salaries and bonuses. The NI charge is greater than that paid by a sole trader/partner, but there is no NI charge on dividends.	A partner/sole trader will pay Class 2 NI of £2.70 p.w. (2013/14) and Class 4 NI dependent on the level of profits.
Shares in a company are generally transferable –therefore ownership may change but the business continues.

Know the differences and wisely choose the best option not only fulfilling your short term needs but also your long term business standing.

Still can't figure out what to choose? Contact us and Arrange Your FREE No-Obligation Meeting to know more. Call us at ✆✆ 020 89310165 ✆✆

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