When it comes to setting up a company, an important starting point is to choose between the three main types of business structures: sole trader, partnership and limited company. Although working as a sole trader means that everything is the responsibility of the business owner – including tax, legal issues and debts – many people prefer to run their company in this way.
Sole trader businesses tend to be easier to set up and many sole traders prefer their business account and personal account being one and the same as it means they have full control over it. If you choose to set up your business as a sole trader, you need to consider different factors than you would with a limited company, as each are structured in completely different ways and both carry their own positives and negatives.
As a sole trader structure offer benefits such as low start-up costs and flexibility in regards to the company handbook and legal implications, it can be the ideal structure for someone who wants to open a small business and build it from the ground up.
How to register a sole trader business name
Officially registering a sole trader business is a quick and simple process. This kind of business model often starts out as being a single individual who provides a service, and they only need to register as a sole trader if they’ve earned more than £1,000 from self-employment over the course of a twelve-month period.
Company name registration is only applicable to a sole trader company if you choose to trademark your business title. If you decide to register your company name for this reason, you should put careful thought into the name, with words, logos, colours, sounds or a combination of each to be considered. It’s likely that HMRC will accept the chosen company name without issue as long as it:
- Doesn’t include offensive, sensitive or vulgar words.
- Doesn’t include any offensive imagery.
- Doesn’t include a word that directly describes the service being provided.
- Isn’t misleading of the service being provided.
- Isn’t too visually similar to specific symbols, as advised by World Intellectual Property Organisation guidelines.
- Isn’t based on a common phrase or statement.
For alternative versions of your trademark, you’re allowed to make up to six variants, but they must share a similar look, sound and meaning to the original. It’s also important to make sure that your chosen trade mark hasn’t already been registered. You can check this through the database on the government website.
Do sole traders have a company number?
A company registration number (CRN) is a mix of letters and numbers that is unique to your company. Each CRN is provided by Companies House as soon as a new company is officially formed, and they’re often perceived as being a positive symbol for presenting professionalism and accountability.
Limited companies, partnerships and limited liability partnerships are automatically given a CRN, but as sole traders are different to these other types of business structure, they don’t require a CRN. The only other business structure that wouldn’t require a CRN is a general partnership (or ordinary partnership), which differs from the similarly titled limited partnership structure.
Do I need a business account as a sole trader?
While limited companies and limited liability partnerships use a dedicated business account for any transaction that relates to their company – keeping all payments separate from private banking accounts – there’s a different setup for sole trader companies. Working as a sole trader means putting time aside for financial responsibilities such as paying invoices and sending annual forms to HMRC to account for tax and earnings.
Some sole traders will stick to using their own bank account for business matters, and they’re perfectly within their rights to do this in the eyes of HMRC, as long as tax is accounted for. However, setting up a business account for a sole trader business is a good idea and is likely to prevent any confusion between the finances of the business and an individual’s own personal finances. Opening a dedicated business account also means that it’s easier to keep tabs on the company’s finances, so it’s an important consideration for a sole trader business.