If you are trading as a sole trader or a business that's not LTD you and your business are treated as one. This means if you have problems with the business you are personally liable for any debts the business incurs. This can put your house and any personal assets you might have at risk.
If you have a Limited company you are limiting your personal liabilities. A Limited Company is a legal entity in it's own right. You are not personally liable for the company's debts, as long as you have traded legally or you have not given personal guarantees regarding contracts or suppliers etc. If things go wrong the creditors are paid out of the company's assets not from your own personal assets. Also once you have chosen and registered your company name no other company can use the same name, unlike business where names can be duplicated.
From:
http://www.uk-business-formations.co.uk/
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