Why Private Limited Company is better than Sole Trader?
Sure enough, no one wants to witness their car taken away from them, or any priced possession for that matter. This is why we see that corporations are far more existent than sole traders. It won’t be long before sole traders become almost extinct.
Let us break it down for you here.
In simple terms, a corporation is a company that registers itself apart from its owners. It’s a literal shield from angry bankers trying to get to your personal belongings. This is why Private Limited Companies are well preferred. Private Limited Companies have something known as the ‘Corporate Veil’, protecting them from personal liability. Pretty secure, right?
Let’s jump further.
Investors are more likely to invest in a Private Limited Company because it promises a long life. Speaking in the long term here, are we? Then Tax rates are next.
In Sri Lanka, once a sole trader passes a net profit of 2 million, the percentage tax charged would be 16%. That is a significant addition of 4% compared with a Private Limited Company, where the tax rate is 12% until net profit exceeds a value of 5 million.
Of course, if you are running low in cash and want to get started, setting up a sole trader is the option for you. As a sole trader is a one man show, profits are being enjoyed alone. Mind that the owner is being held for company debts and actions. Here comes the angry bankers and there goes your car.
Sole traders’ capacity to raise capital is small, as external sources of finance to sole traders are quite rigid.
Let us hold the breaks here for a bit and give you an example
Bankers will not be ready to provide loans due to the high risk in a sole trader and their unlimited liability. So raising capital through external sources will be quite the hassle.
If you are quite inexperienced in the industry, then a sole trader is not a good cup of coffee for you.
Ready to set up? We got you covered.
If you are interested in registering a private limited company, you can read our post on – How to register a private limited company in Sri Lanka.