What's the Difference Between a Sole Trader, Ltd and plc?
Compare sole traders, Ltds and plcs for A Level Business: understand ownership, liability, raising finance and the key difference between private and public shares.
A sole trader is one person running a business in their own name. An Ltd is a private limited company, while a plc is a public limited company. The main differences are liability, ownership and how the business can raise finance.
| Form | Ownership and liability | Raising finance |
|---|---|---|
| Sole trader | One owner has unlimited liability: they are personally responsible for business debts. | Usually relies on personal funds, retained profits or borrowing. |
| Ltd | Shareholders own the company and usually have limited liability. Shares cannot be offered to the general public. | Can sell shares privately or borrow. |
| plc | Shareholders own the company and usually have limited liability. Shares can be offered to the public. | Can raise finance by offering shares to the public or by borrowing. |
Limited liability means shareholders generally risk the money they have invested, rather than being personally responsible for the company’s debts. An Ltd or plc is a separate legal entity: legally, the company is distinct from its owners. A sole trader has no such separation, although they can still employ staff.
A sole trader usually keeps control of decisions and any profits after costs and tax, but may find it harder to raise large amounts of finance. An Ltd can bring in other shareholders while keeping share ownership private. A plc has wider access to potential investors, but its original owners may have to share more control, and a public company faces more demanding reporting requirements.
For example, a café owner operating as a sole trader is personally responsible if the café cannot pay its debts. If the café becomes an Ltd, the company owes its debts; shareholders normally risk their investment instead. Becoming a plc would allow the company to offer shares to the public.
Exam mistake to avoid: a plc does not have to be listed on a stock exchange. “Public” means it can offer shares to the public; an Ltd cannot.
