Sole Trader, LTD, LLP or PLC: What’s Right for You?

Choosing the right company structure is one of the most important decisions when starting a new business. Every successful business starts with a crucial choice: selecting the structure that best aligns with your vision. So whether you want the simplicity of a sole trader or the protection of a limited company (LTD), understanding your options can shape your path to growth.

Graeme Donnelly, Founder and CEO of 1st Formations, shares the most popular organisation types. He highlights their benefits to help you make an easier decision.

What is a limited company (LTD)?

An LTD is the most common business structure in the UK. A company is a separate legal entity from its owners or managers. This means the company is responsible for its own debts and taxes, not the individuals.

An LTD must be registered with Companies House and is owned by shareholders and managed by directors. One person can take on both roles, or multiple people can run the company together.

After registration, basic company details appear on the Companies House register. This includes the name, address, directors, shareholders, and those with significant control. Limited companies are required to file annual accounts each year. If the company has not traded, dormant accounts are required instead

Limited companies pay Corporation Tax on profits. From April 2023, the main rate is 25% for companies with profits over £250,000. Companies with profits below £50,000 pay the ‘small profits rate’ of 19%, and those in between may qualify for marginal relief.

After formation, an LTD will need to:

Register for Corporation Tax within three months of starting business activity
File a confirmation statement every year and update Companies House on changes
File annual accounts (or dormant accounts if not trading)
Register for PAYE if employing staff
Register for VAT if turnover exceeds £90,000

LTDs provide solid financial protection because they generally shield personal assets. They are also a tax-efficient way to pay yourself. It is also affordable and simple to set up, but it does require ongoing admin to stay compliant.

What is a Limited Liability Partnership (LLP)?

An LLP is a business type that mixes features of traditional partnerships and limited companies. LLPs are owned and managed by their members. Like shareholders in a limited company, LLP members benefit from limited liability. This means that, generally, they are not personally liable for the debts of the business.

LLP members have the right to take part in the management of the LLP. By default, LLP profits are distributed equally among the members. Each LLP member is required to pay income tax on the profits they receive.

Members are subject to the rules set out in an LLP Agreement. In practice, some members will typically be more senior or more actively involved in running the business. Profit distributions are also noted in a Members' Agreement or an LLP Agreement.

LLP members generally have limited liability and are not personally responsible for the LLP’s debts if it becomes insolvent. However, if a member is found guilty of negligence, or involved in wrongful or fraudulent trading, they may be held personally liable. LLPs must have at least two designated members at all times, who carry extra legal responsibilities, such as submitting the annual accounts to Companies House.

What is a sole trader?

A sole trader is an individual who runs and owns a business alone, taking full responsibility for its profits and liabilities. It’s often the most straightforward option for first-time business owners deciding between sole trader vs limited company structure. Examples include freelancers and consultants in very low-risk industries, tutors, and delivery drivers/couriers.

Key features of becoming a sole trader include:

Quick setup – no need to register with Companies House; just notify HMRC and submit Self-Assessment.
Minimal admin – few reporting and record-keeping requirements compared to companies.
No separation – there’s no distinction between you and the business.
Self-employed – although you’re self-employed, you can still employ staff.
Simple taxation – you pay Income Tax and National Insurance on any profits.
Unlimited liability – you are personally responsible for all business debts and obligations. If the business encounters difficulties, your personal assets may be at risk.

If you want as little registration and admin work as possible and you don’t need to raise external funding, sole tradership may be suitable

Because sole traders carry unlimited personal liability, this structure is usually best suited to businesses in low-risk sectors where the chance of financial claims is minimal.

What is a Public Limited Company (PLC)?

A PLC is a type of business structure that can legally sell its shares to the general public on the stock market. The PLC model is mainly used by larger businesses and fast-growing startups that need more capital from investors to fund expansion or major projects.

Most PLCs begin as private companies. They often go public after building a solid, trustworthy track record. To become a PLC, a company must have a minimum allotted share capital of £50,000, of which at least 25% must be paid up front before the company can begin trading.

Who is this structure right for?

Large companies that want to grow often require a substantial amount of capital. They might use this capital for expansion, research and development, or acquisitions. Industries like banking, oil, pharmaceuticals, and telecommunications often use the PLC structure. This is because they require a lot of capital for operations, growth, and research.
Companies planning an Initial Public Offering (IPO) often restructure into a PLC. This helps them go public and raise money from shareholders before they list shares on a stock exchange.
Established businesses wanting to grow can switch to a PLC structure. This lets more people invest and own part of the business.

Launch your business confidently

Choosing the right business structure from the outset is a key decision for any entrepreneur. It affects everything from tax obligations and personal liability to credibility and access to future investment. Taking the time to assess your options carefully can help minimise complications down the line and set your venture on the right footing from day one.

About the author

Graeme Donnelly is the Founder and CEO of 1st Formations, with 25 years’ experience driving innovation in the startup and SME sectors. As the UK’s leading company formation agent, 1st Formations offers simple packages for customers from the UK and overseas, with majority of new companies registered within 24 hours.