During your company formation process, it is a crucial step to select which type of business entity you would like to start. There are different pros and cons for each kind of business vehicle and so it is important for you to weigh them against your business goal. 

Below please find the comparison of a limited company and a sole proprietorship in terms of various main categories:

Limited Company Sole Proprietorship

Setup Cost & Process

More complex and expensive to set up when comparing with sole proprietorship.

Simple and quick to set up, plus the setup cost is low. Good for people who just want to test the market first.

Legal Entity

It has a separate legal entity from its director / shareholder, so it can enter into contract, buy asset on its own.

It is not a separate legal entity and so the owner and the business are considered as one.

Personal Liability

The director and shareholder liability is limited to the amount of their investment.

The personal liability is unlimited. If the company incurs debts, there is no protection for personal assets.

Company Image

The public perception is good because it projects a long-term image. Investors would be more confident in it.

As there are certain risks involved and people are less confident in this kind of entity, it is not easy to find investors.

Company Maintenance

It needs to comply with several on-going requirements like filing of annual return, arranging audit, etc.

No need to audit its financial statements or file annual return with the companies registry.

Discontinuance of Business

Required to follow deregistration procedures. Generally the whole process will take around 6 - 9 months.

Easier and less expensive process to close down the business.

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