How does a sole trader differ from a limited company?

Prepare for the AAT Level 3 Financial Accounting Exam with comprehensive quizzes. Master the preparation of financial statements with detailed questions and explanations. Enhance your understanding and get set for success!

A sole trader operates as an individual and is personally responsible for all aspects of the business, meaning there is no legal distinction between the owner and the business itself. This characteristic highlights one of the key differences between a sole trader and a limited company, which is recognized as a separate legal entity. A limited company is a distinct legal person that can own assets, incur liabilities, and be held liable in its own right. This separation provides a layer of legal protection that is not available to sole traders, as the latter's personal assets may be at risk in the event of business debts.

The choice that indicates a sole trader operates as an individual while a limited company exists as a separate legal entity accurately captures the fundamental distinction in their structures and the implications this has for liability and ownership.

Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy