A limited company differs from a sole trader business in a number of ways. By setting up a company, you can protect your personal finances from being used to cover any business debts – this is not possible when running a business as a sole trader, because there is no legal distinction between business finances and personal finances.
A limited company can also boost the status of your business and create a professional, corporate image. This is very appealing to prospective clients, suppliers and lenders.
Additionally, there are a number of tax advantages to running a business as a limited company. Sole traders pay Income Tax of varying rates on all business profits; limited companies pay corporation tax on business profits at a flat rate of 20%, although directors may have to pay Income Tax and National Insurance on their income if it exceeds a certain amount. Limited companies also present far greater tax planning opportunities than sole traders businesses.