Many of you thought what business form to choose.
Here we've listed the main ones and outline advantages and disadvantages of each.
Let's begin with,
Sole Traders
Sole traders is the business which owned by one person.
They are individuals unincorporated which means the owner is not a separate legal entity to their business.
If a sole trader’s business fails, the owner will have to cover debts using personal possessions. This is because sole traders have unlimited liability.
Possible examples includes plumbers, dairies, taxis and others
Here we've listed the main ones and outline advantages and disadvantages of each.
Let's begin with,
Sole Traders
Sole traders is the business which owned by one person.
They are individuals unincorporated which means the owner is not a separate legal entity to their business.
If a sole trader’s business fails, the owner will have to cover debts using personal possessions. This is because sole traders have unlimited liability.
Possible examples includes plumbers, dairies, taxis and others
ADVANTAGES
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DISADVANTAGES
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Partnerships
Partnerships, how are they different? why would you want to choose partnerships?
A partnership is an agreement between two or more people to run a business together.
Common examples: dentists, lawyers.
A partnership agreement would usually be drawn up which include agreement on issues such as
- How the profits are shared
- Now decisions are made
- How many hours the partners work
- Restrictions on drawings if any
- What duties of each partner
- How much capital each partner have invested
Partnerships are still not a separate legal entity (an unincorporated business).
This is potentially worse as not only are you personally liable for your decisions but also for your partners.
Partnerships, how are they different? why would you want to choose partnerships?
A partnership is an agreement between two or more people to run a business together.
Common examples: dentists, lawyers.
A partnership agreement would usually be drawn up which include agreement on issues such as
- How the profits are shared
- Now decisions are made
- How many hours the partners work
- Restrictions on drawings if any
- What duties of each partner
- How much capital each partner have invested
Partnerships are still not a separate legal entity (an unincorporated business).
This is potentially worse as not only are you personally liable for your decisions but also for your partners.
ADVANTAGES
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DISADVANTAGES
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Companies
There are three important differences between companies and the two 'unincorporated' business organisations we have just stated.
1) Companies have limited liability
The ownership of a company is divided into units called shares and those who own these are called shareholders. All shareholders benefit from limited liability - it is called "limited" because the only potential loss of the value of the shares.
Therefore, people are more prepared to invest (provide finance) for companies to expand as it involves lower risks.
2) Companies have their own legal identify.
Once incorporated, a company is recognised by law as having its own identity.
It pays tax, can enter into contracts, and break the law.
If this happens, the company itself would be prosecuted, not the shareholders.
(In some circumstances the directors and/ or employees can also prosecuted)
3) Companies have continuity.
In sole traders and partnerships, death of the owner(s) means that the business unit ends (although of course it can be restated in partnership).
For a company, if a shareholder dies, the shares are inherited by someone else and there is no break in ownership.
There are three important differences between companies and the two 'unincorporated' business organisations we have just stated.
1) Companies have limited liability
The ownership of a company is divided into units called shares and those who own these are called shareholders. All shareholders benefit from limited liability - it is called "limited" because the only potential loss of the value of the shares.
Therefore, people are more prepared to invest (provide finance) for companies to expand as it involves lower risks.
2) Companies have their own legal identify.
Once incorporated, a company is recognised by law as having its own identity.
It pays tax, can enter into contracts, and break the law.
If this happens, the company itself would be prosecuted, not the shareholders.
(In some circumstances the directors and/ or employees can also prosecuted)
3) Companies have continuity.
In sole traders and partnerships, death of the owner(s) means that the business unit ends (although of course it can be restated in partnership).
For a company, if a shareholder dies, the shares are inherited by someone else and there is no break in ownership.
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