By Haydn Rogan on Small Business UK – Advice and Ideas for UK Small Businesses and SMEs
Being a sole trader means that you run your own business as an individual and are essentially self-employed. This is the most popular way of trading in the UK, with 4.4m sole proprietorships recorded as of October 2025.
By contrast, a limited liability company is a separate legal entity to you, with separate finances.
Each option has its own advantages and disadvantages, and if you’re just starting out in business, you need to decide which works best for you.
Here, we look at some of the major differences in terms of legal liability, taxes and bureaucracy.
Also see: Should I go sole trader, partnership or limited company?
Liability
A key advantage of a limited company structure is that it ringfences your personal assets. If your business fails or is sued, you will only lose any investment in the business and won’t be personally liable for meeting charges such as litigation costs or damages from your own finances. Although, in some cases, lenders may require personal guarantees.
As a sole trader, you and your business are one single legal entity. You are personally liable for any debts and liabilities you incur in the running