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1 Sole Trader

Advantages

Disadvantages

Autonomy over decision making. Rationale of decisions depends on sole trader skills and experience.
Business secrets such as formula, recipe etc can be kept confidential easily. Unlimited liability for debts incurred by sole trader. He/she is liable to his/her single penny.
Life of the business is limited to sole trader. Illness, imprisonment etc can disrupt the operations of sole trader.
Usually small sized business as size of the business is limited to personal wealth and contribution from friends and family. Ability to raise debt finance depends on credit standing of sole trader.
Lack of benefit from economies of scale
Lack of internal controls to safeguard assets of the entity.

2 Partnership

Advantages

Disadvantages

Partnership can be pursued by service businesses to create synergy, such as partnership firm of accountants providing audit and tax services. Rationale of decisions depends on partner charged with taking decision over particular activity or function.
Provides some degree of economies of scale. Unlimited liability for debts incurred by sole trader. Partners are individually and collectively liable for debts incurred by the partnership up to their single penny. If one partners become insolvent, than other partners are legally bound to his/her debts.
Dispute over area of responsibility or lack of trust among partnership can affect the operations of partnership. Difference in opinions can also cause disputes.
Life of partnership is limited to retirement of any one partner.
Lack of internal controls to safeguard assets of the entity.
Business secrets such as formula, recipe etc can be difficult to keep confidential.
Lack of autonomy over decision making

3 Limited Liability Company

Advantages

Disadvantages

Limited liability company provides protection against to investors as their liability is limited to the amount invested in company. Requires agency cost by shareholders such as AGM, EGM, financial reporting, audit etc. Agency cost is the cost of monitoring investment in the company.
Provides economies of scale. Business secrets such as formula, recipe etc can be difficult to keep confidential.
Limited liability company enables raising finance in the form of share. Public limited company can raise finance in the form of loan notes too. Double taxation. Taxation of corporate income and taxation of dividends paid to shareholders.
Life of limited liability company limited to voluntary or compulsory winding up. It is not affected by illness, death of manager/director.
Sufficient internal controls to safeguard assets of the tax company.
Strategic and financial decisions are taken by taking account of different viewpoints of board of directors. It enhances the quality of decisions.
Shareholders can dispose part of their investment rather than selling complete business.

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