Key points
- A sole trader is the business: quick to start, but personally liable for everything.
- A limited company is a separate person. Its money is not yours, but your personal assets are protected in most cases.
- A PLC can offer shares to the public, but needs at least £50,000 of share capital, two directors, a qualified secretary and an audit.
- A CIC and a charity work for a community or a cause. A CIC can trade and pay limited dividends; a charity cannot distribute profit at all.
The first question: how should your profit work?
When you choose a structure, start with the profit. Each structure serves a different interest:
- Sole trader: money for you, quickly. "My profit works for me today. Everything I earn is mine."
- Ltd: the owner and the company are separate. The company can build reserves, invest, grow and scale while paying less tax, and you decide when to take money out. But you cannot use its money freely.
- PLC: like a Ltd, but able to raise large investment from the public. Many PLCs do not make a profit for years: investors fund them for future returns, often when there is new technology or know-how.
- CIC or charity: profit works for a community or for charitable purposes. The aim is social, not profit, although a CIC can still make one.
Five structures side by side
| Sole trader | Ltd | PLC | CIC | Charity | |
|---|---|---|---|---|---|
| Registers with | HMRC | Companies House and HMRC | Companies House and HMRC | Companies House and the CIC Regulator | Charity Commission and HMRC |
| Your liability | Unlimited: your savings and property | Limited to your shares | Limited to your shares | Limited | Limited for charitable companies and CIOs |
| Profit works for | You, straight away | The company first, then you | Shareholders and investors | The community | Charitable purposes only |
| Main taxes | Income Tax, Class 4 NI | Corporation Tax, then tax on salary or dividends | As a Ltd | Corporation Tax | Generally exempt on charitable income |
| Raising money | Your own and loans | Shares to private investors | Shares offered to the public | Grants, sales, limited investment | Donations, Gift Aid, grants |
| Reporting | Self Assessment; Making Tax Digital from £50,000 | Accounts, tax return, confirmation statement | Full accounts and an audit | Accounts plus the CIC34 report | Annual return and accounts to the Commission |
Sole trader
You register with HMRC for Self Assessment, online through your HMRC account, even your personal one. The form asks for your details, address, business details and type of work. HMRC then sends you a Unique Taxpayer Reference (UTR), and you are registered.
You can also start the other way round: trade first, and register once your income goes over the £1,000 trading allowance, by 5 October after the end of that tax year. That is allowed, but keep records of all your business costs from the first day, not just your income. It is best to agree the registration date with an accountant, so you do not make things worse for yourself.
A sole trader is not separate from the business, and carries full responsibility for all its obligations. If something goes wrong, claims can be made against your property and savings. If your activity is risky, think twice before choosing this structure.
And at higher income it is not simpler than a company: once your income is over £50,000, Making Tax Digital means digital records and five reports a year. See self-employed, salary or dividends for the tax comparison.
Limited company (Ltd)
A Ltd registers at Companies House and with HMRC for Corporation Tax. Usually both happen together, in the same application.
The application asks when the company will start trading: from a certain date, from registration, or "not decided yet". Registration agents who are not accountants often tick "not decided". Then, when the first accounts are due, and even a company that has not traded must file them, the accountant has to get the codes and register the company with HMRC urgently. That always costs more.
Limited liability. As a shareholder, you risk only the capital you put in for your shares. As a director, you are responsible for the company paying its debts and taxes correctly and on time. If the company fails for reasons outside your control, for example because customers did not pay, you are not personally liable. The exceptions: personal guarantees you signed for lenders, and directors who knowingly kept trading while the company could not pay its debts.
Public limited company (PLC)
A PLC registers and pays tax exactly like a Ltd. The difference is that it can offer its shares to the public, and, if admitted, list them on a stock exchange. A Ltd can also issue new shares to investors, but it is private and cannot raise money from the public. That makes a PLC's options for raising capital much wider, but it comes with conditions:
- At least two directors
- A qualified company secretary who keeps the company's records
- Allotted share capital of at least £50,000, with at least a quarter paid up, and a trading certificate before it starts business
- A statutory audit every year
Community interest company (CIC)
A CIC registers at Companies House and is approved by the CIC Regulator, which confirms its community purpose. It can trade, pay its directors a salary and, if limited by shares, pay limited dividends. It has limited liability, and it can apply for many grants that ordinary companies cannot.
But it is not tax-free. Read CIC accounts and the CIC34 report to see how grants are taxed.
Charity
A charity in England and Wales registers with the Charity Commission once its income is over £5,000 a year, and with HMRC for tax reliefs such as Gift Aid. It reports to both. It works only for charitable purposes, does not distribute profit and lives on donations, grants and other funding rather than commercial profit.
Which structure fits you?
A first indication only. The right choice depends on your plans, your other income and your risks.
Before you register, decide
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One piece of advice
Decide before you register how much you want to earn, how you want to receive it, how much you leave for the company to grow, and whether you need investors. At a serious level of income, every structure needs a qualified accountant. The more complex the structure, the more it costs, so build that into your financial plan from the start.
Test yourself
1. Where does a sole trader register?
A sole trader registers with HMRC for Self Assessment. Companies House is for companies.
2. Your Ltd has not started trading. Does it still file accounts?
Even a company that has not traded files accounts and a confirmation statement.
3. What is the minimum share capital for a PLC?
At least £50,000, with at least a quarter paid up.
4. Which structure can never distribute profit to its members?
A charity's assets work only for its charitable purposes.
Law and sources
- GOV.UK: set up as a sole traderRegistering for Self Assessment and the 5 October deadline
- GOV.UK: tax-free allowances on trading incomeThe £1,000 trading allowance
- GOV.UK: set up a limited companyRegistering with Companies House and for Corporation Tax
- GOV.UK: Corporation Tax when you start tradingTell HMRC within 3 months of starting to trade
- Companies Act 2006, sections 154, 271, 761 and 763PLC: two directors, a qualified secretary, £50,000 minimum share capital and a trading certificate
- Insolvency Act 1986, sections 213 and 214When directors can become personally liable
- GOV.UK: community interest companiesThe CIC Regulator's guidance
- GOV.UK: set up a charityRegistering with the Charity Commission when income is over £5,000
This guide explains the rules in general terms as at 4 October 2026. It is not advice for your situation.
