Sole Trader vs Limited Company vs Partnership — side-by-side across every key factor.
| Factor | Sole Trader | Limited Company | Partnership |
|---|---|---|---|
| Legal status | You are the business — no legal separation between you and the business. | Separate legal entity. The company exists independently of its directors/shareholders. | Two or more individuals trading together. No separate legal entity (unless LLP). |
| Personal liability | ✗ Drawback Unlimited. Your personal assets (home, savings) are at risk if the business has debts. |
✓ Advantage Limited to the amount you invested. Personal assets are protected in most cases. |
✗ Drawback Unlimited and joint. Each partner is liable for the whole partnership's debts. |
| How to register | Register for Self Assessment with HMRC. No Companies House registration needed. | Incorporate at Companies House (£50 online). Then register for Corporation Tax. | Register each partner for Self Assessment. File a partnership return annually. |
| Income tax | Pay Income Tax on all profits via Self Assessment (20%, 40%, 45% bands). | Company pays Corporation Tax on profits (19–25%). You pay Income Tax on salary/dividends. | Each partner pays Income Tax on their share of profits via Self Assessment. |
| National Insurance | Class 2 NI (£3.45/week) + Class 4 NI (9% on profits £12,570–£50,270). | ✓ Advantage Directors can minimise NI by taking a low salary + dividends. Dividends attract no NI. |
Each partner pays Class 2 + Class 4 NI on their share of profits. |
| Tax efficiency | ~ Neutral Simple but less tax-efficient at higher profit levels. |
✓ Advantage More tax-efficient above ~£30,000 profit. Salary + dividends strategy reduces overall tax. |
~ Neutral Similar to sole trader. Profits split between partners can reduce individual tax burden. |
| Privacy | ✓ Advantage No public record. Accounts are private. |
✗ Drawback Accounts and director details filed at Companies House and publicly visible. |
✓ Advantage No public filing required (unless LLP). |
| Admin burden | ✓ Advantage Low. One Self Assessment return per year. No annual accounts required. |
✗ Drawback Higher. Annual accounts, Corporation Tax return, confirmation statement, payroll if applicable. |
~ Neutral Medium. Partnership return plus individual Self Assessment for each partner. |
| Credibility | ~ Neutral Perfectly credible for most small businesses and freelancers. |
✓ Advantage "Ltd" after your name can increase perceived credibility with larger clients and suppliers. |
~ Neutral Similar to sole trader. LLP adds some credibility. |
| Ease of setup | ✓ Advantage Simplest. Register online with HMRC in minutes. No cost. |
~ Neutral Straightforward but more steps. £50 Companies House fee. Takes 24–48 hours. |
✓ Advantage Simple. Agree a partnership agreement (recommended) and register with HMRC. |
| Raising investment | ✗ Drawback Difficult. Investors cannot take a stake in a sole trader business. |
✓ Advantage Can issue shares to investors. Eligible for SEIS/EIS tax relief schemes. |
~ Neutral Can bring in new partners, but less attractive to external investors than a limited company. |
| Closing the business | ✓ Advantage Simple. Notify HMRC and stop trading. |
~ Neutral Requires formal dissolution (strike off) or liquidation. More process involved. |
~ Neutral Dissolve the partnership and notify HMRC. Settle any joint liabilities first. |
| Best suited for | Freelancers, sole traders, low-risk service businesses starting out. | Growing businesses, higher earners (£30k+ profit), anyone wanting liability protection. | Two or more people going into business together informally. Professional firms (LLP). |
Note: Tax rates and thresholds correct as at June 2026. Always seek professional advice before choosing your business structure.