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

The first question on our application form – for running a pub with Greene King – is about your business, how are you going to trade? Sole Trader, Partnership or Limited Company.

Faced with this question many people immediately start scratching their heads wondering just what they are letting themselves in for.  It is not surprising, legal terms can be difficult to understand.  Thankfully, understanding the differences between sole trader, partnership and limited company is easier than you might think.  A clear understanding of these terms is crucial because it will determine what type of business you have.

It is not simply a matter of running a pub, you have to make choices as to the way in which your business is structured. This affects the way in which your tax and legal requirements are undertaken. Choosing between the three types of business will affect the amount of tax you pay, how you organise the accounts for the money going 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, 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 You Run A Pub As A Sole Trader?

A sole trader is basically someone who is self-employed and is the only owner of their business. They have no partners; it’s just them.  It is a very simple business structure, and popular with entrepreneurs setting up in business for the first time.  Any business can be operated as a sole trader from pubs to cafes, shops to factories. You can employ as many people as you like – but you are the only owner of the business.

When it comes to accounting and tax affairs, you have to fill in an annual self-assessment form.  All your profits are taxed as income.  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 3 months.


There are a lot of benefits to being a sole trader.  Setting up in business as a pub licensee is very quick. There are no registration fees involved; your business is a private one. You do not have to release information to Companies House. Legal documentation is minimal, and confined to the legal documents needed to actually take over and run the pub. Paperwork is minimal, as your tax affairs are dealt with in your annual self-assessment.


There are also drawbacks that must be borne in mind when you are making your decision as to which business route to take.

As a sole trader, you will be responsible for all debts.  If there are any financial problems with your business, then you have to pay the debts. A sole trader has unlimited liability for all debts.  All your assets can be taken from you when recovering debts – that can include your house, your car, savings, investments, property even personal items like TV’s and furniture.  You can lose everything and be declared bankrupt. 

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

Tax rates 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 You Run Your Pub As A Limited Company?

If you opt to set up a limited company, then your business becomes separate from your personal earnings.  You – as an individual - are no longer the business and your personal possessions are no longer at risk if financial problems develop. Your financial liability is limited to the money you have invested in the business.

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 one director and a company secretary.  Normally the licensee would act as the company director.

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


Your personal possessions are no longer at risk.

It is more tax efficient. 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.  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.

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. 

Registering a company business name means that it is unique to you. No one else can use it.


It is much more complicated to set up a limited company, and the setting up costs are higher.  Your financial information becomes public property and has to be submitted to Companies House. There is more paperwork!

You will need an accountant and legal advisor.

Should You Run A Pub As A Partnership?

Many of our licensees run their pubs as a Sole Trader with partners or family members involved in the business as employees. However, you may want to share responsibility for the business in a more formal way, protecting your interests and that of anyone else invested in it. For this a Partnership is appropriate where each party owns a specific percentage of the profits, as well as any liabilities.


Your business partner will help you run the business – depending on your agreement and how you’ve defined responsibilities.

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 and develop faster and in different ways than if just one person runs the business.

A partner will also be responsible for their share of any debts and therefore this reduces your exposure.


You’ll need to have a great professional working relationship and be focused on the same objectives for the pub. 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.

Before making a decision on whether to be a Sole Trader, run your pub as a Partnership or go down the Limited Company route; seek professional advice from an accountant.

This is a decision which has to be made very carefully as it will affect the way you operate, and the long term development of your business. While it may be possible to change your status later on, for example by setting up a Limited Company having operated as a Sole Trader, 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 is right for you.