Difference between Limited Company, Sole Proprietorship and Partnerships.

Difference between Limited Company, Sole Proprietorship and Partnerships

Limited Company

A venture which is a separate legal and financial entity from the person or the people who are running it, is known as a ‘Limited Company’. A Limited Company is properly registered once it has been registered with Companies House online or by using form IN01 via post. If the person is not using the term ‘Limited’ in the company name then the registration needs to be done by post. The company gets registered within 24 hours of receipt of the application, if it’s done online whereas Postal Registration can take upto 10 days.

Sole Proprietorship

A Sole Proprietorship is when an individual runs a business solely by themselves. They are also considered to be self-employed. This also gives the individual the complete authority of every single aspect of the business. It can operate under a Trade Name but it is not a separate legal entity. The business uses the individual’s tax code so that’s why it is easy to set-up a Sole proprietorship. Even managing the taxes is simple because the income generated by the business is also the individual’s personal income.


When there is an understand between 2 or 3 people to carry on a business, it is known as a Partnership. A Partnership has one common factor which is to earn profit. In UK, Partnerships are governed by the Partnership Act 1890. An English Partnership specifically isn’t a separate legal entity. Generally, Partners have no limit when it comes to liabilities. Partnerships usually is a result from a contract or an agreement which had been made, either written or orally. When this agreement is implemented, partnership gets created.  

What are the benefits of choosing a Limited Company as opposed to the rest?

A Limited Company’s finances are completely separate from the shareholders’ or the company director’s finances, only the capital which has been put into the business is their responsibility. Whereas, a sole proprietorship is responsible for both their personal and their business’ finances. And in a partnership, the responsibility of the finance is upon the partners.

When it comes a Limited Company, the identity business is solely unique to the company and will automatically be protected from other companies who wish to use the same name. A Limited Company also have the option of offering shares to their employees which is a good motivation booster. This means it also gives the right to the employees to have a say on how the business should be run.

In a Limited Company, the liabilities are protected which means if the company is in a loss, the Shareholders’ personal assets are not at a risk as it is a separate legal entity from the people who own them. Meanwhile, Sole Proprietorships and Partnerships are responsible for their losses and hence, they are subject to lose their assets if they are bankrupt or stuck in legal matters.

Limited Company have the benefit to easily raise funds by selling their stock if the company is in debt. But Sole proprietors and business partners have to try to raise funds on their own or by taking a loan.

Tax benefits are there when it comes to a Limited Company. They file taxes separately from the shareholders. Owners of the company pay their taxes through any salaries, bonuses or dividends which they earn from the company. The Tax rate of the Company would be lower than the personal income tax rate. Sole proprietors and business partners pay income taxes at regular rates based on the profits that they earn from their businesses.


In Conclusion, it is safer to establish as a Limited Company than a Sole Proprietorship or a Partnership as the benefits are far more better and the risks are way lesser.