Justification for Using a Corporate Business Structure

Topics: Corporation, Business law, Corporate tax Pages: 4 (1151 words) Published: August 6, 2008
Justification for using a corporate business structure

In today's competitive business environment, your choice of corporate structure could affect your business' long term success. A business entity can be structured in three ways, that being a sole trader, partnership or a company. Sole traders carry on business alone, thus leaving the owner with complete control of the enterprise and its employees, ownership of all profits, business assets and personal responsibility for all debts. It is the simplest business structure to set up and maintain. A partnership is one better than a proprietorship because it has partners sharing the managerial role. It also has the ease of formation through a simplistic partnership agreement with low start up costs supplied from the greater sources of capital available. Profits are split between each owner and this provides a tax benefit of lower tax outcome. A company is the most superior out of the three structures. It is a separate legal entity unlike the other two, meaning that there is limited liability amongst its shareholders, thereby safeguarding their personal assets. They have the largest tax advantage of 30% company tax rate and the dilemma of insufficient capital is hardly the case. However, it is less flexible than the other two structures because they must abide by certain regulations thus creating excess reporting and record keeping. These structures have miscellaneous benefits and drawbacks, and suit different business purposes. In determining which of these forms best accommodates a business, multiple factors are taken into consideration:

The type of business in operation- if productivity is limited to individual skills, then a sole trader or partnership should be in use. •The amount of risk involved- if the business comprises of relatively low risk, then a sole trader enterprise or partnership is most suitable. However, if employees are likely to face high risk, then a corporate structure should be...
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