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Factors

Sole Trader

Partnership

Limited Liability Company

Management Success of business depends on individual’s skills and experience. Success of business depends on partner’s skills and experience. Dispute over areas of responsibility can result unwanted result and deadlocks Success of business depends on board of directors as they assume final responsibility for the financial performance of the company. Coordination is needed among board of directors for fluent operation of business.
Liability Losses in business can put sole trader in severe financial difficulty. Losses in business can put partners in severe financial difficulty. Losses in business can erode shareholders’ investment in shares at maximum. Shareholders have unlimited share in profits while limited share in losses.
Internal Controls No or little internal control activities. Individual provides supervision to employees. No or little internal control activities. Partners provide supervision to employees. Formal internal control procedures to provide supervision to employees at all levels.
Succession Lack of skills and experience of successor can threaten the stability of business. Lack of harmony among partners can threaten the stability of business. Shareholders can appoint and remove the board of directors by voting in AGM.
Taxation In UK individual subject to high tax rate band is taxed at higher rate than corporation tax rate. In UK individual subject to high tax rate band is taxed at higher rate than corporation tax rate. Double Taxation by shareholders. One for corporation tax, which reduces the Profit After Tax attributable to shareholders and other, is tax on dividend payments. However, tax on dividend payments is only payable when dividend is declared. Tax on dividend payments can be reduced or avoided through careful tax planning.
Business Secrets Sole trader can better look after for business secrets such as formula, recipe, process etc. Dissolution of partnership or leaving of partnership by partner may lead to disclosing of secrets to competitors. Secrets are difficult to keep due to financial reporting requirements and corporate governance requirements. Later is compulsory for Listed companies.

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