How am I going to trade? Sole trader partnerships or limited company

One of the first decisions you must make (other than the very easy one of which pub company to choose…) when taking on a pub is deciding how you are going to trade.  

There are three options available to you – Sole Trader, Partnership or Limited Company.  

If the terms don’t sound familiar or you are unsure which is best for you and your position, then read on and we’ll break it down for you.  

Understanding these terms and the difference is crucial because it will determine the type of business you run. Choosing between the three types will affect the amount of tax you pay, how you organise the accounts for the money in and out of the business, as well as the legal structure.  

Making the right decision involves looking at factors such as the amount of investment you have, your potential profits and the availability of potential business partners. 

So, what exactly does it mean? And what are the implications for your business?

Should I be a Sole Trader? 

If you are taking the step into pub ownership as an individual, then this could be a route that suits you. It’s essentially someone who is self-employed and is the only owner of the business.  

It offers a very simple business structure and is popular with entrepreneurs setting up for the first time. It’s not just limited to pubs – any business can be operated as a sole trader; from pubs to cafes, shops to factories.  

There’s no limit on how many people you can employ but you’re the sole owner of the business. And when it comes to accounting and tax affairs, all your profits are taxed as income, and you fill in an annual self-assessment form.  

You have to pay fixed rate Class 2 National Insurance contributions, and in due course, Class 4 contributions will be payable on your profits. You’ll also need to be registered for VAT and file VAT returns every three months. 

There are many advantages to being a sole trader:  

Speed – it’s the quickest way to set up as a pub licensee.  

No fees – there aren’t any registration fees, your business is a private one 

Minimal legal documentation – this is confined to just the documents needed to take over and run the pub 

Data protection – you don’t have to release information to Companies House 

Straightforward – the paperwork is minimal as tax affairs are handled via your annual self-assessment.  

As with any ownership structure, there are also disadvantages that must be taken into consideration when making your decision:  

Debt - as a sole trader, you will be responsible for all debts. If any financial problems arise, then you must pay the debts. 

Unlimited liability - a sole trader has unlimited liability for all debts. All your assets could be taken from you when recovering debts – that can include your house, your car, savings, investments, even personal items like TV’s and furniture. You could lose everything and be declared bankrupt.  

Raising finance – this can be harder, especially if you are looking to expand and take on additional pubs.  

Tax rates – these can cause problems for sole traders. Depending on the level of your profits, you may find yourself paying much higher taxes than if you were running a limited company. 

Should I run my pub as a Limited Company? 

A limited company is a form of business which is legally separate from its owners. Your personal earnings (and possessions) are not at risk if financial problems develop. The company’s liability is limited to its assets.  

You will need one or more shareholders in the business. As the pub licensee you can be the sole shareholder, or have additional shareholders such as family members who take a slice of the profits via dividend payments in return for their investment. There has to be at least one director and a company secretary. Normally the licensee would act as the company director. 

When operating a limited company, you will take your income from a salary, and possibly dividends. 

The benefits of a limited company are: 

Minimising personal liability - your personal property and possessions are no longer at risk. 

Tax efficient – you won’t have to complete a self-assessment form and your tax commitments will be the same as any employee, as you will be taxed on your salary. You will also pay Class 1 National Insurance.  

Corporation Tax - profits will be subject to Corporation Tax – and there are a lot of allowances and tax-deductible costs that can be claimed which help to reduce the final tax figure that has to be paid. 

Credibility and trust - operating a limited company does give you much greater credibility as a business owner, especially when it comes to dealing with national organisations, investors and other companies.  

Brand protection - registering a company business name means that it is unique to you. No one else can use it. 

The drawbacks of setting up this type of company are: 

Complications and costs - it is much more complicated to set up a limited company, and the set up costs are higher.   

Financial transparency - your financial information becomes public property and must be submitted to Companies House. There is more paperwork! 

Professional support - you will need an accountant and a legal advisor. 

What about running it as a Partnership? 

Many of our licensees run their pubs alongside their partners, or with family members involved as employees. But by forming an official partnership, this allows you to share responsibility for the business in a more formal way – both protecting your interests and that of anyone else invested.  

A partnership allows each party to own a specific percentage of the business and its profits, as well as any liabilities.  

The benefits of this arrangement are: 

Shared responsibility - your business partner will help you run the business, depending on your agreement and how you’ve defined responsibilities. 

Additional expertise - partnerships can also bring different skills and experience into a pub business, which a sole trader doesn’t have by themselves. This can help the pub business grow more quickly and in different ways. 

Shared accountability - each partner will also be responsible for their share of any debts and therefore this reduces your individual exposure. 

The potential pitfalls involved in this type of ownership are: 

Loss of autonomy – you won’t be solely responsible for making the business decisions, so you’ll need to have a great professional working relationship and be focused on the same objectives for the pub.  

Potential conflict - disagreements between partners could result in one deciding to withdraw from the partnership, forcing the other partner to buy their share of the business or close the business entirely. 

A formal partnership agreement is essential, outlining what will happen if the partnership fails to protect both parties.  



Before making a decision on whether to be a Sole Trader, run your pub as a Partnership or go down the Limited Company route; we must request that you seek independent financial and legal advice from a trusted professional.  

This is a decision which must be made very carefully as it will affect the way you operate, and the long-term development of your business.  

It may be possible to change your status later, for example by setting up a Limited Company having previously operated as a Sole Trader, but it’s much easier to start as you mean to go on. This way you’ll be able to focus on developing your pub business, rather than adding more paperwork to your workload. 

If you would like to discuss any of the above, please get in touch with our team. We can’t advise you on what the best option is for you – an independent accountant or solicitor must do this – but we can give you some examples of how other licensees are operating their businesses so you can get a better understanding of what might be right for you.