To be or not to be: sole trader or limited company

I started this post last week and it was deleted by the man from Dell when he was fixing yet another problem with my laptop! The purpose of this blog is not to have a moan about Dell and their services - on that the less said the better. In fact is is part two on things you need to do when setting up your own business. Click here for part one. Duncan Brodie commented on that post that the first thing a new business owner had to decide was what business structure to go for. At the time that seemed fairly obvious to me but recently it became less so and therefore I thought I would share the process that I have been going through as it might be helpful.

For most small businesses the choice is between signing up as a sole trader or becoming a limited company. Initially it seemed pretty obvious to me that setting up as a sole trader was the way forward because I had very few overheads as a coach and consultant and limited liabilities. However that all changed when one of the organisations that I work for said that they would no longer work with consultants that did not have a limited company, after 31 March 2010.

Initially I was not at all keen at the prospect. It meant getting a memorandum and articles of association, filing a set of accounts once a year with Companies House - all of which seemed like more work. Now some weeks on I can see that it could make my organisation seem more professional. It could also have other benefits such as the payment of dividends to the Directors out of the pre-tax profits. That makes up for the £200 or so that most individual business owners choose to pay for someone to set up their business as a limited company with an off the peg set of memorandum and articles.

In short I am now seriously considering the idea of making Whole Self Leadership a limited company. It is funny how potentially bad news can act as an opportunity. However in my research so far, I have been surprised by the number of people who are sole traders and have not gone for the limited company option. What's your view? What choice did you make and why?