Each type of business organisation has its advantages and disadvantages, and you must choose the type which is most suitable for your needs.
The sole trader approach is likely to be the first choice for many small home-based businesses. Its advantages are:
It is easy to set up
The owner has complete personal control
All profits belong to the owner personally.
The disadvantages of being a sole trader are:
The liability of the owner is unlimited - he may be made personally bankrupt if the business fails
The growth of the company is limited by the amount of money the owner either has or can borrow as a personal loan
If the owner is ill, the business may not be able to carry on; although sometimes a good employee may be able to manage the business for a short while.
Setting up in partnership can overcome some of the above drawbacks. A partnership is more complicated to set up than a sole trader business, but less so than a limited company. The advantages of a partnership are:
It offers greater scope for financial investment and growth
It allows the skills of several people to be combined, rather than relying on one person
If one partner is ill, the others can continue the business; the business may also continue on the death of one partner.
The disadvantages are:
As with a sole trader, the liability of the partners is unlimited; however, in this case, the partner accepts liability not only for his own decisions but for those of his partner or partners. It is therefore essential that a partnership is only entered into with people whose integrity and ability can be relied upon
Although there is likely to be more money available for a partnership than for a sole trader, there will generally be much less than for a limited company
Each partner has less direct control than a sole trader.
A limited liability company is the safest type of enterprise, but it is also the most complex. Its advantages are:
No individual is liable to the company for any amount in excess of the value of his shares; thus, everyone knows how much he is committing himself to from the start If the company fails, individuals will not normally face personal bankruptcy and the loss of their property and possessions The amount of money available for investment is much greater than with other forms of business More expertise is generally available.
The disadvantages are:
The business is more complicated to set up and will generally require the professional services of a lawyer and an accountant
There is a cost involved in registering as a legal company
The person who sets up the business does not own it - no individual does. He may well be the majority shareholder (that is, the person who owns most of the shares) and have a considerable amount of control, but he cannot have the complete personal control of the sole trader. What he does will be subject to the power of other shareholders, and to the requirements of very strict laws.
In summary, each type of business organisation has both advantages and disadvantages. Many people starting out opt for sole trader status, and perhaps subsequently expand into partnerships and companies as their businesses grow and develop. When starting out, the important thing is to decide what type of organisation will be most appropriate for your business. - 15478
The sole trader approach is likely to be the first choice for many small home-based businesses. Its advantages are:
It is easy to set up
The owner has complete personal control
All profits belong to the owner personally.
The disadvantages of being a sole trader are:
The liability of the owner is unlimited - he may be made personally bankrupt if the business fails
The growth of the company is limited by the amount of money the owner either has or can borrow as a personal loan
If the owner is ill, the business may not be able to carry on; although sometimes a good employee may be able to manage the business for a short while.
Setting up in partnership can overcome some of the above drawbacks. A partnership is more complicated to set up than a sole trader business, but less so than a limited company. The advantages of a partnership are:
It offers greater scope for financial investment and growth
It allows the skills of several people to be combined, rather than relying on one person
If one partner is ill, the others can continue the business; the business may also continue on the death of one partner.
The disadvantages are:
As with a sole trader, the liability of the partners is unlimited; however, in this case, the partner accepts liability not only for his own decisions but for those of his partner or partners. It is therefore essential that a partnership is only entered into with people whose integrity and ability can be relied upon
Although there is likely to be more money available for a partnership than for a sole trader, there will generally be much less than for a limited company
Each partner has less direct control than a sole trader.
A limited liability company is the safest type of enterprise, but it is also the most complex. Its advantages are:
No individual is liable to the company for any amount in excess of the value of his shares; thus, everyone knows how much he is committing himself to from the start If the company fails, individuals will not normally face personal bankruptcy and the loss of their property and possessions The amount of money available for investment is much greater than with other forms of business More expertise is generally available.
The disadvantages are:
The business is more complicated to set up and will generally require the professional services of a lawyer and an accountant
There is a cost involved in registering as a legal company
The person who sets up the business does not own it - no individual does. He may well be the majority shareholder (that is, the person who owns most of the shares) and have a considerable amount of control, but he cannot have the complete personal control of the sole trader. What he does will be subject to the power of other shareholders, and to the requirements of very strict laws.
In summary, each type of business organisation has both advantages and disadvantages. Many people starting out opt for sole trader status, and perhaps subsequently expand into partnerships and companies as their businesses grow and develop. When starting out, the important thing is to decide what type of organisation will be most appropriate for your business. - 15478
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