Limited Company Contracts vs Sole Trader Contracts
Last updated: February 2025
Quick Comparison
| Aspect | Limited Company Contracts | Sole Trader Contracts |
|---|---|---|
| Contracting party | The company is the legal party | The individual is the legal party |
| Liability | Limited to company assets (unless personal guarantees given) | Unlimited personal liability |
| Execution | Signed by director on behalf of company, or under company seal | Signed by the individual personally |
| Continuity | Contract survives change of directors or shareholders | Contract is tied to the individual |
What Is a Limited Company Contracts?
Contracts entered into by a limited company as a separate legal entity, with directors signing on behalf of the company.
Key Features
- • Company is the contracting party, not the individual
- • Limited liability protects personal assets of shareholders
- • Directors sign as authorised representatives
- • Must comply with Companies Act 2006 execution requirements
Best For
- • Businesses wanting to separate personal and business liability
- • Contractors operating through a PSC for IR35 purposes
- • Higher-value engagements where counterparties expect corporate status
What Is a Sole Trader Contracts?
Contracts entered into by an individual trading in their own name, where the person and the business are legally the same entity.
Key Features
- • Individual is personally liable for all contract obligations
- • No distinction between personal and business assets
- • Simpler execution; individual signs in their own name
- • No Companies House requirements
Best For
- • Simple, low-risk business activities
- • Freelancers and small service providers
- • Early-stage businesses testing a concept
When to Use a Limited Company Contracts
Use limited company contracts when you want to protect personal assets, the engagement has material financial risk, or clients expect to contract with a corporate entity.
When to Use a Sole Trader Contracts
Use sole trader contracts for straightforward, lower-risk work where simplicity is valued and the financial exposure is manageable within your personal means.
Which Does Your Business Need?
For most UK businesses beyond the very early stages, contracting through a limited company provides important liability protection. However, sole trader status is perfectly adequate for many freelancers and small service providers. Consider the risk profile of your work.
FAQ
Can a client require me to contract through a limited company?
Yes. Many clients, particularly larger organisations, require contractors to operate through a limited company for IR35 compliance and liability reasons. This is a commercial decision by the client, not a legal requirement.
How does a limited company sign a contract under English law?
Under the Companies Act 2006, a company can execute a document by having it signed by a single director with a witness, two directors, or a director and the company secretary. A company can also execute a deed under its common seal if it has one.
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Get Started FreeThis is guidance for UK businesses, not legal advice. Consult a solicitor for complex matters.
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