Ltd Company V Sole Trader

SarahLu wrote: »

I see, thank you. Is that something that could be covered by insurance if she were to become a sole trader? She does currency pay for business insurance but I'm not sure what is covered.

No one can say precisely what is covered by her business insurance because we can't see her insurance documentation. However, I'd say it is rare for this to cover financial loss.

SarahLu wrote: »

Sorry, I don't mean whether her insurance covers it, I just mean is it something that generally could be covered by insurance were she to become a sole trader

I would think it unlikely, but a conversation with an insurance broker would soon get a definitive answer.

the thing about insurance is that it is all about assessing risk. If she employs anyone, then she is required to have employer's liability insurance, because that covers the risk of an employee being injured. Home insurance covers the risk of a visitor to your property being seriously injured, perhaps by tripping over something. Generally, the risk of either of these things happening is quite low.

As soon as something becomes more risky, the cost of insurance rises. So insurance for a building site is expensive, insurance for a small office much less so.

Before offering insurance against a sole trader going bust, an insurer would want to assess the risk - and that, I would say, is a niche market.

So really, she needs to think about WHAT is at risk if her business fails. What's a worst financial case? She owes millions, or a few thousand? Can she mitigate those risks? She's already limited her personal liability by having a LIMITED company - unless she (or other directors) behaves recklessly, or she's offered her house as personal security on a loan, for example.

I really do think this is the kind of thing her accountant ought to be able to explain to her, and if you (plural) don't understand what's being said, and what's going on in the accounts, then you (plural) need to either change accountants (if the current one isn't very good at explaining), or get something like the Dummies guide to limited companies (yes, it does exist!) and do some bedtime reading.

SarahLu wrote: »

It was because there was quite a bit of scope for the business to grow and potentially take on employees in the future but that now isn't going to be the case.

So the risks to personal finances would go up. That is a fairly good reason.

Just to be pedantic, many sole trader business have quite big businesses and have many employees. The owners of these businesses obviously see the advantages of being a sole trader and accept the risk to their personal finances.

SarahLu wrote: »

Thanks all.

Her business basically consists of her, she is the only employee and the only director. I think its a case of speaking to the insurance company about the potential risks (they are very small). If they can be covered through insurance then I don't really see any other real benefit to her staying as a limited company but it will be interesting to see what they (and her accountant) advise.

When I started my (sole trader) business over 20 years ago, I got several marketing calls from insurances companies offering self-employment insurance covering loss of income during sickness. Their premiums were very high if I remember correctly and I did not take out any insurance.

You can get insurance against customers not paying. The insurance covers both Ltd companies an sole traders as far as I am aware.

It is down to the risks and your sister's assessment of them. She has to think of what is the worst thing that could happen and whether she will have the funds to cover the financial loss of that worst case event.