I can't speak for UK rules - only for US, so I'm the wrong authority. But registering a business means you're keeping your personal finances, property, interests separate from your business. You run them separately, and by-and-large, they are taken into consideration separately. So, if your business accrues debt, a debtor could not issue a lien against your house - something like that.
Don't take this example as absolute truth, and I'm not a lawyer, but this is the idea behind limiting your liability.
That pretty well sums it up.
I'd add that in the UK, your business/personal 'account/liabilities' are only seperated if you form a limited Company.
So as a 'sole trader' if you business has debts of £10,000, YOU have those debts.
But a limited company is a seperate legal identity, in this case the £10,000 debts would belong to the company not you.
In reality of course, the banks/tax man / big boys, always get there money.
Best just not to have any debts, liabilities.
Better still, get in the situation where you owe the tax man 10s of thousands each year, because that will mean your earning a lot.
Look a bit further round WHT and you'll find the 'running a business - section.
_____________________________________________________________ - There are many types of Marmalade -
In the states we have LLC's. Limited liability companys. You do not have to be a big business to start one you can be only one person. It gives you the benifits of a corperation with out the cons of one as well as less strict regulation.